NHS: Evidence-based Medicine
	 — 
	Question

Lord Taverne: To ask Her Majesty's Government whether they will ensure that treatment provided by the National Health Service is founded on evidence-based medicine.

Earl Howe: My Lords, evidence should be at the heart of modern medicine. The National Institute for Health and Clinical Excellence develops authoritative, evidence-based guidance that we expect the National Health Service to take fully into account in its decision-making. However, it is ultimately the responsibility of clinicians to determine the most appropriate treatments to prescribe, in discussion with their patients and taking account of individual clinical circumstances.

Lord Taverne: My Lords, the Secretary of State has announced his support for homeopathy and his opposition to research into hybrid stem cells. He has also stirred up the abortion debate. Would the Minister perhaps persuade the Secretary of State to make a public reassuring statement that he will not use his position as head of the health service to promote the kind of anti-science views and primitive social attitudes which are normally associated with the American Tea Party?

Earl Howe: My Lords, I would expect that my right honourable friend the Secretary of State is well aware of the public comment on his recent statements, but he is entitled to his personal views. The Government's position remains that it is the responsibility of local NHS organisations to make decisions on the commissioning and funding of healthcare treatments, such as homeopathy, for NHS patients.

Lord Hunt of Kings Heath: My Lords, I refer the House to my interests in the register. Following up that point, does the Minister not think that the Secretary of State should at least show some discretion when he comes to make statements on these issues in the sense that he is also head of the Department of Health and the National Health Service? In relation to his response on NICE and guidance, is he satisfied that the technology appraisals that NICE issues are indeed implemented by the health service?

Earl Howe: My Lords, I do not think I can add to what I said previously as regards my right honourable friend. No doubt he will take the noble Lord's comments into consideration. As regards NICE guidance, as the noble Lord will know, there are concerns that in certain parts of the health service NICE guidance is not followed as we would expect it to be. There are various initiatives in train to correct that, both as regards the NICE technical appraisals and also clinical guidelines.

Baroness Meacher: My Lords, the noble Earl knows very well that NICE has issued excellent guidance in relation to the increased access to psychological therapies, and these therapies are the best way, according to the evidence, to deal with depression and anxiety. Can the Minister explain to the House what actions he will take to make sure that these evidence-based therapies are available across the country? As the Minister knows, at present they are not.

Earl Howe: The noble Baroness will remember that one of the features of the Health and Social Care Act is a duty placed on the NHS Commissioning Board to promote the quality of care. In doing that, it will promulgate commissioning guidance based on advice received from NICE. In the mandate there is another means for the Secretary of State to ensure that instruments such as NICE clinical guidelines get traction within the health service.

Lord Walton of Detchant: The Minister has given a reasoned response to the Question posed by the noble Lord, Lord Taverne. I had the privilege some years ago of chairing the House of Lords Select Committee inquiry into complementary and alternative medicine. There is evidence that certain aspects of those disciplines may be of benefit to patients. I am a strong supporter of clinical freedom on the part of clinicians. Having said that, does the Minister not fully agree with the point made by the noble Lord, Lord Taverne, to the effect that the careful inquiries carried out by the National Institute for Health and Clinical Excellent have been influential, and importantly so, in indicating clearly which forms of treatment are effective in the management of illness and disease, which should be supported by the NHS and which, if they are not evidence based, should not be paid for by public funds?

Earl Howe: I agree with the noble Lord. He will know that the guidelines issued by NICE are condition specific. They bear in mind that if there is evidence to suggest that certain procedures may not benefit patients, it would be appropriate for commissioners to consider restricting access on grounds of clinical effectiveness.

Baroness Williams of Crosby: Does the Minister agree that in situations where the mandate is to be issued-of course, it has just concluded its consultative period-the emphasis should be placed clearly on the need to recognise that mental health is of similar importance to physical health in the whole of the NHS's projections? Could this also perhaps be an opportunity to underline the significance of NICE advice to GPs and others?

Earl Howe: My Lords, my noble friend makes an extremely important point which was of course the subject of debate during the passage of the Health and Social Care Act. She will know that, in the draft mandate, there was considerable emphasis on mental health. I shall take her views firmly into account as we go forward into finalising the text of the mandate.

Lord Patel of Bradford: My Lords, the UK is blessed with an excellent evidence base on the treatment of drug misusers. Can the Minister reassure the House that government policy around illegal drug use and treatment for drug users is based on that evidence base and not on what appears to be a policy direction of abstinence only and punishment for drug users?

Earl Howe: My Lords, yes I can. There is a real impetus within Government to look at evidence-based treatment for illegal drug users.

Baroness Wall of New Barnet: My Lords, I am surprised that in his response to the noble Lord, Lord Taverne, the noble Earl did not remind him of the health and well-being boards which make decisions now about what is happening locally. Certainly, from my experience, homeopathy has been one of the issues that the health and well-being board in Enfield has been looking at. Obviously, the evidence base is important, but should not that direction on what is locally required be made a priority?

Earl Howe: The noble Baroness makes an important point, and of course she is right that health and well-being boards will be very important forums for establishing the clinical priorities in geographic regions and then setting strategies to meet those priorities. However, in the end, it is for commissioners and individual clinicians to decide what is best for patients in a particular area.

Death Penalty: Global Abolition
	 — 
	Question

Lord Dubs: To ask Her Majesty's Government what progress they have made with their Strategy for Abolition of the Death Penalty 2010-2015.

Lord Wallace of Tankerness: My Lords, the Government regularly raise the death penalty with countries that retain it and fund civil society campaigns around the world in support of abolition. There is some progress. Last year, only 21 countries carried out executions, which was a decrease by more than one-third over the past decade. However, more needs to be done and we are working towards ensuring that more countries than ever support a resolution against the death penalty at the United Nations later this year.

Lord Dubs: I thank the Minister for that helpful Answer. Will he confirm that the newly appointed Minister of Justice in Japan has said that he takes a cautious stance on the death penalty? What efforts are the Government making to nudge him down the path towards at least a moratorium? Does the Minister further agree that getting abolition would be easier if it were not for the bad example set by the United States?

Lord Wallace of Tankerness: My Lords, it is my understanding that Japan executed a man and a woman on 27 September. The Government immediately issued a statement expressing our regret at this action. They took that opportunity again to urge the Japanese authorities to impose a moratorium and have made regular representations to the Japanese authorities on the death penalty. I understand that the noble Lord has visited Japan to take forward the case for abolition of the death penalty.
	I do not think that we have any evidence that our efforts are hampered by the United States. It is also the Government's position that we make representations to the United States on the abolition of the death penalty.

Baroness Stern: My Lords, I chair the All-Party Group for the Abolition of the Death Penalty. I should like to ask the Minister about Belarus. I am sure he is aware that in Belarus people on death row are told that they are to be executed a few moments before it happens. They are then shot in the back of the head. They are buried in secret so that their relatives do not know where they are. Has the Minister made any efforts to persuade the Government of Belarus to stop these horrible practices?

Lord Wallace of Tankerness: My Lords, I pay tribute to the work of the noble Baroness, Lady Stern, as chair of the all-party parliamentary group and to the noble Lord, Lord Dubs. I understand that the noble Baroness chaired an event yesterday to take forward this issue. With specific reference to Belarus, I am sure that the House will share her appalled reaction to what has happened there. As to representations to Belarus, we recognise that it is the only country in Europe to retain the death penalty. It is one of the priority countries that the United Kingdom has identified for lobbying against the death penalty. We continue to lobby the Belarus authorities to encourage a moratorium on the death penalty as a first step towards abolition, and to impress on them that abolition of, or even a moratorium on, the death penalty would certainly open a way for improved relations with the Council of Europe.

Lord Avebury: My Lords, will my noble and learned friend consider drawing the attention of countries which have either recently reintroduced or are considering reintroducing the death penalty to the statistical evidence published by the Equality Trust? It shows that violent crime and murder are strongly correlated to the level of inequality in a society. Will the Government particularly ensure that heads of state such as President Jammeh of Gambia, who believes that murder rates can be reduced by executions, are made aware of this evidence?

Lord Wallace of Tankerness: My Lords, my noble friend raises an important issue. I am sure that that is one of the arguments that is put forward. He mentioned the United Nations. Considerable effort is being made, including by the United Kingdom Government, to ensure that when the matter comes before the General Assembly of the United Nations in the next few weeks we can increase the number of countries that will make a stand against the death penalty.
	It was highly regrettable that executions took place in Gambia after a number of years when there had been no executions. Again, I assure your Lordships' House that immediately following that execution, the United Kingdom Government, on behalf of the European Union, made strenuous representations to the Gambian Government.

Baroness Symons of Vernham Dean: Have there been any recent representations from our Government to the Government of Iran about the repellent use of the death penalty for people under the age of 18?

Lord Wallace of Tankerness: My Lords, Iran is one of the priority countries that have been identified. The House will know what I mean when I say that sometimes to get international engagement with Iran is not the easiest thing in the world. I would certainly utterly condemn execution generally, but particularly the execution of juveniles, as the noble Baroness says. We would want to call on the Iranian authorities to cease their use of the death penalty and follow the global trend towards abolition. It is not just the United Kingdom Government who want to see that; we engage with the international community generally to put pressure on Iran.

Lord Alton of Liverpool: My Lords, did the Minister see the resolution of the European Parliament calling for an immediate end to public executions in North Korea? I stood a few days ago at Tumen on the river Tumen, which separates North Korea from China, a place where people are summarily executed as they try to flee from their country. Members of your Lordships' House will be aware that China repatriates people who escape from North Korea, some of whom are thrown into gulags, where there are 200,000 people, and some of whom are executed. Will the Minister tell the House what representations we are making in our bilateral discussions with China about the use of the death penalty there and about repatriations to North Korea; and whether we have we raised these matters directly with the North Koreans?

Lord Wallace of Tankerness: My Lords, I am not familiar with the European Parliament resolution to which the noble Lord refers, but I can confirm that we regularly make representations to the Chinese Government on the death penalty and last raised this issue with the Chinese in May this year. We will continue to do so whenever we can. I regret that I cannot give a more specific answer with regard to people who are repatriated to North Korea, but I shall ensure that the noble Lord's concerns on that specific point are drawn to my colleagues' attention in the Foreign and Commonwealth Office.

Baroness Whitaker: Sri Lanka, which of course retains the death penalty, comes up for peer review at the UN Human Rights Council in November. It has recently advertised for hangmen. What efforts are Her Majesty's Government making to encourage Sri Lanka to desist, either unilaterally or through the Commonwealth?

Lord Wallace of Tankerness: My Lords, as I said to my noble friend Lord Avebury, we see the United Nations as an important forum for bringing international pressure. My noble friend Lady Warsi joined in a meeting organised by the French Government in New York a couple of weeks ago, and I think that the meeting chaired by the noble Baroness, Lady Stern, yesterday had much of its focus on what can be done to ensure that steps are taken at the United Nations. Of course, we also believe that our engagement with the Commonwealth gives us a good forum and a good number of opportunities to raise these issues. Indeed, at last year's Heads of Government Meeting in Perth, my right honourable friend the Foreign Secretary addressed a gathering on the issue of the death penalty and the case for abolition.

Energy: Hydropower
	 — 
	Question

Lord Trefgarne: To ask Her Majesty's Government what is their estimate of the cost per kilowatt-hour (before subsidy) of generating electricity by hydropower; and how many sites within the United Kingdom have been authorised for this purpose.

Baroness Verma: My Lords, government records indicate that around 625 sites are currently operating in the UK. For large-scale installations over 5 megawatt capacity, the central estimate for standard run-off river hydro plants is 12.8 pence per kilowatt-hour. There are currently no published cost estimates for smaller hydro plants under 5 megawatts, but we expect to publish generation costs later this year for a range of renewable technologies drawing on evidence used in the renewables obligation and feed-in tariff.

Lord Trefgarne: My Lords, is my noble friend aware that the Environment Agency has authorised several thousand very small sites for the purposes of electrical generation to the dismay of the angling community-and, indeed, the fish?

Baroness Verma: My Lords, my noble friend mentioned the angling community, and I agree with him that it is a very important and large community. When it raises concerns, we take them very seriously. But the trust is fully engaged in ongoing work to review the Environment Agency's hydropower good practice guidelines.

Lord Clark of Windermere: Is the Minister aware that three years ago there was an ongoing working party composed of the Forestry Commission and the Department of Energy and Climate Change looking at the difficulties of generating hydropower on public land? Could she dust down that report and see whether we can progress a bit further and contribute more to producing green energy?

Baroness Verma: My Lords, I will have to dust down the report because I have not yet sighted it. I reassure the noble Lord that there will be opportunities coming up early in the new year as regards consultation and reviews of what we are carrying out. That would be a most appropriate time to raise concerns or issues.

Baroness Parminter: Given that renewable energy delivers green economic growth and energy security, will the Minister outline how important hydropower is in delivering the Government's renewable energy obligations?

Baroness Verma: My Lords, hydropower is an important part of the renewable energy mix and currently contributes around 15% of the renewable generation capacity in the UK. There is further potential for hydro schemes but it is limited by size. However, we still estimate that there is a potential to increase the number of small-scale projects to produce an additional capacity of around 1 gigawatt.

The Countess of Mar: My Lords, what is the level of subsidy for hydropower compared with that for solar power and wind power?

Baroness Verma: My Lords, all the different technologies have different subsidy levels. I should like to write to the noble Countess on the different subsidy levels, if she will allow that.

Baroness Worthington: My Lords, I extend a warm welcome to the noble Baroness, Lady Verma, in her new position as Minister. She has some very large and fine Wellington boots to fill but I am sure that she will do so very ably. My question relates to pumped-storage hydro, which, as I am sure the noble Baroness will know, is a very effective way of balancing demand and supply on our electricity grid. Will the forthcoming energy Bill contain something to support this very important technology, particularly in relation to the capacity mechanism therein?

Baroness Verma: I thank the noble Baroness and your Lordships' House for their very warm welcome. The energy Bill will seek powers to implement a capacity market as part of the reforms to the electricity market to deliver secure, affordable, low-carbon electricity. We expect that pumped-storage hydro projects would be eligible to receive capacity payments under the capacity market. Further detail will be set out alongside the introduction of the energy Bill in autumn.

Lord Foulkes of Cumnock: Has the noble Baroness had an opportunity to visit Scotland, Wales or Northern Ireland to discuss with them how we can co-operate in this important area, particularly Scotland which is a third of the land area of the United Kingdom? If she has not yet had the opportunity to make such a visit, may I encourage her to do so? I know that she will be made very welcome indeed.

Baroness Verma: I thank the noble Lord for his invitation to go to Scotland. I have not yet had time to visit it but I very much take on board the importance of hydro energy in Scotland.

Lord Avebury: What is the current state of play on the Severn barrage and what is the cost of electricity generated by it estimated to be?

Baroness Verma: My Lords, at the moment I cannot give the noble Lord the detail that he requires. Therefore, if he will allow me to write to him on the Severn barrage, I would be most grateful.

BAE Systems and EADS
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	Question

Lord Lee of Trafford: To ask Her Majesty's Government what is their policy on the proposed merger between BAE Systems and EADS.

Lord Marland: My Lords, earlier today the Government were advised by BAE Systems and EADS that they have decided not to proceed with the proposed merger. The two companies will remain as independent companies, each with a significant presence in the UK. The Government were clear that the merger would only ever work if it met the interests of all the parties involved. Today the two companies decided that a merger cannot be concluded.

Lord Lee of Trafford: My Lords, many of us will be disappointed at today's breakdown in merger talks and the lost opportunity to create a unique, major, pan-European group across the defence and civil aviation sectors. Given the pressures on defence spend on both sides of the Atlantic and the move to UAVs-drones-away from more labour-intensive fighter aircraft, has not BAE Systems serious problems to face over the medium to longer term as a stand-alone plc? Does my noble friend know whether BAE Systems has a plan B? Sadly, are not further job losses inevitable?

Lord Marland: It is important that BAE Systems, as an independent organisation, now delivers a strategy and business plan to satisfy its shareholders in terms of its future. As a Government, we will be looking very closely at that because we are obviously highly dependent on the company for our defence support. However, this is a terrific British business. It is not a business that we should question. It turns over £19 billion and is therefore of significant value to the economy. It makes £1.6 billion profit, which is of significant value to the taxpayers, and employs some 35,000 people. We look to hear from BAE on this matter, but I thank the noble Lord for this very topical Question at a very apposite time.

Lord Craig of Radley: My Lords, is this outcome entirely satisfactory from the Government's point of view?

Lord Marland: The Government have been totally clear all along. It is up to the two companies-and countries, for that matter-to decide whether this is a suitable engagement. We also have to remember that EADS is a big employer in this country. It is responsible for the Eurocopter, which is very important to our defence needs. It employs 17,000 people and is therefore a significant independent company.

Lord Tebbit: My Lords, my noble friend said that this was entirely a matter for the company. Does that indicate that the Government would not ever in future use the golden share, which, when British Aerospace was privatised, it was decided that the Government should have because there are national interests that rate above the narrow interests of the company?

Lord Marland: Indeed, the national interests are absolutely fundamental and, of course, my noble friend was in Cabinet when those decisions were made. They were made to protect the national interest. However, the Government have not had to make a decision on that issue. The two companies have decided among themselves that they are not going to merge, and we are therefore in the fortunate position of allowing them to make that decision without us intervening.

Lord Hughes of Woodside: Did the Minister hear the reports at lunchtime which said that one of the major reasons for the breakdown in negotiations was the insistence of Angela Merkel and the German Government on greater control over the combined company? Is this so? If it is, is it not good that they did break down?

Lord Marland: I am not going to respond to the media interpretation of this breakdown. For those who wish to look at the official announcement, it related to the legal structure between the two entities, whether they would operate in the countries and how they would share the workload. Those were fundamental reasons for the breakdown. Of course the German Government will have views on this merger, as do indeed our Government and the French. It would be, as my noble friend Lord Tebbit said, totally appropriate that we should. It is important in all our national interests.

Lord Dykes: Will my noble friend advise the House, because although shareholder, investor and stock exchange issues were obviously primordial in this matter, and the apparent breakdown happened for those reasons, there must also have been some discord between the three Governments he referred to-ourselves, France and Germany? Will he take steps to rectify that in future to make sure that we have a more common position on defence requirements in Europe?

Lord Marland: The noble Lord should not suggest that there was discord between the three nations. There was discord at a company level, where it was decided that a number of the dynamics would not operate together. There is no discord between France, Germany and the UK in this matter. In fact, we have very positive relationships.

Lord Boateng: My Lords, Germany and France pursue their national interests vigorously through EADS. Will the British Government pursue the interests of the British worker and British strategic interests through BAE Systems?

Lord Marland: Indeed. It was noticeable that the previous Government did not pursue BAE's interests with the vigour that we are doing as a Government. The Prime Minister has been on many visits supporting our defence industry. I, too, took every chief executive of our cyber companies around the Middle East, selling our incredible cyberspace technology and gaining orders as we went. I think you will find-and we do not need to dwell on it for too long-that we are promoting extensively our defence industry, which is huge. It won orders worth £5.4 billion last year, which is no small figure.

Railways: Franchises
	 — 
	Private Notice Question

Tabled By Baroness Royall of Blaisdon
	To ask Her Majesty's Government, in the light of the reply by Earl Attlee yesterday, whether they will clarify how they intend to review the mistakes made in awarding the west coast main line franchise; what assessment they have made of the propriety of a review being conducted by a departmental non-executive director; what the cost will be of (a) reviewing the mistakes made, (b) making interim provision for operating the line and (c) reissuing the tender for the franchise; and what initial actions they have taken to avoid any other rail franchises being affected.

Lord Davies of Oldham: My Lords, I wish to ask the Question of which my noble friend the shadow Leader of the House has given private notice.

Earl Attlee: My Lords, first, I refer to the answer that I gave the House yesterday. The Secretary of State has asked Sam Laidlaw to look into the west coast procurement process with the support of independent advice. This review is due to provide findings by the end of October and it would be premature to speculate on them. A second review will examine the implications for the wider franchising programme. Both reviews will be published reports. As I said to the noble Lord, Lord Adonis, yesterday, if there are any questions about the thoroughness and integrity of Sam Laidlaw's inquiry, I shall be happy to debate these when his findings are made public. It is in the interests of the taxpayer that the review is conducted swiftly and thoroughly, and I have every confidence that the Laidlaw review will uncover exactly what went wrong and why.

Lord Davies of Oldham: My Lords, the question asked by my noble friend Lord Adonis yesterday, to which the Minister referred, indicated that these reviews are being carried out by officials in the department that is in the middle of this debacle, and they will inevitably involve the conduct of senior officials, including probably the Permanent Secretary, and Ministers. Therefore, how can they be carried out effectively by junior Ministers? Furthermore, how can the Minister justify the point that was addressed to him in another question yesterday? Ministers received warning of flaws in the franchise process on 10 August, a month before both the Secretary of State and the Minister of State were somewhat surprisingly reallocated to departments far away from transport.

Earl Attlee: My Lords, the noble Lord asked how Sam Laidlaw and Richard Brown can perform their duties. The answer is that they will do so with integrity, and I am sure that the noble Lord is not suggesting that they are unable to do that. He also suggested that officials have acted in bad faith. I can assure the House that there is no evidence whatever of officials having acted in bad faith. It is a serious mistake but there is no evidence of bad faith.

Lord Bradshaw: Will the noble Earl think about the fact that the franchise process is probably irretrievably broken? Will he ask his right honourable friend the Secretary of State to make a bid for room in the legislative programme in the next Session of Parliament, as I believe it is inevitable that this Act and its successors will have to be reviewed?

Earl Attlee: My Lords, I do not believe that the franchise process is inevitably broken, but that is a matter for Richard Brown to review. Professor David Begg has been reported in the Financial Times as saying:
	"Because of this procurement failure we risk becoming far too negative and throwing the baby out with the bathwater. We can fix this, we've done it before".
	Wise words indeed, and the first and correct step is these two fairly quick inquiries.

Lord Morris of Aberavon: My Lords, is not the basic problem the division of responsibility between those who operate the coaches et cetera and those who operate the track? That is one reason why the Department for Transport has a most difficult task indeed. Is the Minister aware that when I chaired the joint inquiry into the finances and management of British Rail, rather a long time ago, not one witness ever suggested such a split? Given where we are, will the Government consider having an independent body of expertise to advise all government departments on the allocation of major contracts?

Earl Attlee: My Lords, if we need a more fundamental review of the structure of the rail industry, and in particular franchising, I am sure that the Brown review will suggest that. I redraw the House's attention to what Professor Begg said over the weekend.

Lord Campbell-Savours: The noble Earl is deliberately avoiding answering the question that is being asked by my Front Bench, which is a question that I tried to ask yesterday. Were Theresa Villiers and Justine Greening informed by civil servants, prior to the appointment of Mr McLoughlin as Transport Secretary, of discrepancies in the calculations concerned with these bids? The answer is simply yes, they were aware, or no, they were not.

Earl Attlee: My Lords, that matter is to be determined by the Laidlaw inquiry.

Lord Martin of Springburn: My Lords, every Monday I use the Pendolino to come here and every Thursday I go back using it. Could I put on record that it is an excellent service? Whenever it has been late it has been because it has had to slow down for the safety of the passengers. The staff are excellent and provide a good service to everyone on that train. It would be a great worry for those who come from further north if there were uncertainty over this service.

Earl Attlee: My Lords, the noble Lord is one of the first to worry about the passengers. I take this opportunity to reassure all noble Lords and passengers that the service on the west coast main line will continue after 9 December.

Baroness O'Cathain: My Lords, in view of the fact that it has been stated that the franchise system is broken and that track and train should never have been divided, the reality is-I would like confirmation of this-that, because of the European Union, we had no option but to divide train and track.

Earl Attlee: My Lords, I would not like to deny that what my noble friend has said is true.

Lord Adonis: My Lords, twice this afternoon, the noble Earl has cited Professor David Begg and his view that the franchise system can easily be rectified. Is the noble Earl aware that Professor David Begg is a non-executive director of First Group, the company to which his department awarded the franchise before it had to be cancelled, and that therefore he is not an entirely independent observer of these events? Does the noble Earl understand what the word "independent" means; it means that one should be apart from the matter that one is reviewing.
	How can Sam Laidlaw, for whom I have the highest respect-he is an executive of great integrity-possibly be judged to be independent when he is a non-executive director of the department whose actions are the subject of an inquiry in this case, including the actions of senior civil servants and Ministers who are with him on the board? Does the noble Earl not recognise that the findings of such an inquiry will always be tainted until they are properly and independently conducted and that proper independent review cannot take place under a non-executive director of the very department that has conducted probably the single biggest failure in British public policy since the poll tax?

Earl Attlee: My Lords, I answered the noble Lord's second point yesterday. On the first point, Professor Begg chaired the Commission for Integrated Transport, which was set up by the party opposite.

Lord Craig of Radley: My Lords, will the Minister confirm that the Treasury was involved in considering and approving the figures worked out by the Department for Transport that proved to be at fault? If so, will the review take account of the contribution that the Treasury has made to this fiasco?

Earl Attlee: My Lords, I am sure that the reviews will look at all causes of the fiasco. The difficulty is that the error was not obvious until officials started looking very closely at the figures in the light of the judicial review.

Scotland: Referendum
	 — 
	Private Notice Question

Lord Forsyth of Drumlean: To ask Her Majesty's Government whether, before the Prime Minister meets the First Minister of Scotland on Monday 15 October, they will clarify whether it is proposed to extend the franchise in any referendum on Scottish independence to 16 and 17 year-olds and, if so, by what legislative means; and what are the implications for UK electoral law.

Lord Forsyth of Drumlean: My Lords, I beg leave to ask a Question of which I have given private notice.

Lord Wallace of Tankerness: My Lords, people in Scotland deserve a referendum on Scottish independence that is legal, fair and decisive. There has been substantial progress made towards an agreement, but details are still under negotiation between the two Governments. The Government will ensure that both Houses of Parliament are kept fully informed, and the order required to provide legal competence to the Scottish Parliament will require the approval not only of the Scottish Parliament but of both Houses, as well as Her Majesty in Council.

Lord Forsyth of Drumlean: Perhaps I may respectfully suggest to my noble and learned friend that he has not answered my Question. Matters of electoral importance and the extension of the franchise are not matters to be carried out in hole-in-the-corner negotiations, however senior the parties. If the franchise is to be extended in Scotland for a referendum, is it not inevitable that we will have to extend it to 16 year-olds for all elections throughout the United Kingdom? This matter has huge implications, not least that it will bring politics into our schools. If the Government are proposing to do that, would it not be proper for them to issue a paper for consultation, to consult widely and to make no commitments whatever until they have done so?

Lord Wallace of Tankerness: My Lords, I assure my noble friend that there is nothing inevitable about what he says. I will make clear the position. The franchise for all parliamentary elections to the United Kingdom Parliament and to the devolved Parliaments has been set by Westminster. There are no plans to change this. The franchise for referendums is set out in the legislation that enables each referendum to take place. Noble Lords will recall the Parliamentary Voting System and Constituencies Act and our debates on the franchise for the AV referendum last year. If we agree to transfer power to the Scottish Parliament to hold a referendum, it is they who will determine the franchise-as is the case for elections and referendums on matters that are already devolved. It is no secret that this has been one of the issues in substantive discussions that have taken place between the United Kingdom and Scottish Governments. However, any decision-should it ever happen-by the Scottish Parliament to allow 16 and 17 year-olds to vote in an independence referendum would not affect the franchise for parliamentary elections.

Lord McAvoy: My Lords, I hoped to welcome the fact that negotiations between the two Governments on the terms of the referendum would soon be complete-but it seems that they are not. Even at this late stage, it seems that the Minister is not able to give the answers that noble Lords sought. The Government should realise that they need to make sure that there is a clear process for extending the vote to 16 and 17 year-olds, given that the law will need to be changed to allow this to happen. The UK and Scottish Governments need to set out as soon as possible the detail and timetable of how the legislation will be changed to ensure that all 16 year-olds are eligible to apply to have their names included on the electoral register. The time has long passed for the process to be concluded so that we can move on to a real debate on the future of Scotland.

Lord Wallace of Tankerness: My Lords, I will make clear what both Governments said last night. Following further discussions between my right honourable friend the Secretary of State and the Deputy First Minister Nicola Sturgeon, further substantial progress was made towards an agreement. They are on track for full agreement but, as I indicated, there are still details to be sorted out. The position of both Governments is that nothing is agreed until everything is agreed, but we are very hopeful that full agreement will be reached. As my noble friend said in his Question, and as the Prime Minister indicated in his speech to the Conservative Party conference today, he hopes to be able to reach full agreement with the First Minister next week.
	I should make clear that there is no set franchise for referendums. Each referendum passed by these Houses of Parliament has had its franchise determined by the Bill setting up the referendum itself. I welcome the noble Lord, Lord McAvoy, to the Dispatch Box for, I think, his first time leading for the Opposition on Scottish matters, and I look forward to many more such times, not least-if we ever get there, as we hope to-on the Section 30 order. I entirely endorse his final comment that the sooner we can determine the process and get on with arguing the case as to why Scotland benefits from being in the United Kingdom and why the United Kingdom benefits from having Scotland in it, and hold up to scrutiny the rather threadbare arguments for independence put forward by the Scottish National Party, the better.

Lord Tyler: My Lords-

Lord Jopling: My Lords-

Lord McNally: I think that we will hear from the noble Lord, Lord Tyler, first.

Lord Tyler: My Lords, can my noble and learned friend at least reassure your Lordships' House that if the franchise is extended to 16 and 17 year-old Scottish citizens for the referendum that is now under consideration, it would also be ridiculous not to extend it to English, Welsh and Northern Irish 16 and 17 year-olds for any following referendum on the European Union?

Lord Wallace of Tankerness: My Lords, my noble friend and I have a party manifesto commitment to votes for 16 and 17 year-olds but that is not the policy of the Government. Obviously, if there was a referendum on the European Union it would be for Parliament to determine the franchise for that. I can rather hear, if that does not happen, an amendment coming on from my noble friend.

Lord Foulkes of Cumnock: My Lords, this has not really been thought through. If there is going to be a separate register for the referendum, who is going to draw up that register, who is going to go round the houses finding out the 16 and 17 year-olds, who is going to publish the register, and who is going to bear the cost of it, the Scottish Government or the United Kingdom Government?

Lord Wallace of Tankerness: My Lords, giving the example of the AV referendum last year, it was not a case of someone having to go round and draw up a separate register for that referendum. There was a register there and we indicated what the franchise was by specifically adding Peers. As I have indicated, if that agreement is reached, it would not be this Parliament passing the legislation, as already happens with elections on devolved matters; for example, the Scottish Parliament has already passed an extension of the franchise to 16 and 17 year-olds for elections to health boards, so there is already a precedent for it having happened in Scotland.

Lord Jopling: My Lords, surely the noble and learned Lord will accept, even if he does not want to, that a reduction in the voting age to 16 and 17 would be a major constitutional change, and that normally major constitutional changes are produced and proposed only after clear consultation and very often with a Speaker's Conference? Would he accept that, in the view of very many people, to produce this like a rabbit out of the hat next Monday is quite unacceptable?

Lord Wallace of Tankerness: My Lords, I hear and take on board what my noble friend says. I have made it clear that the position of the UK Government has been that in terms of extending the franchise to parliamentary elections, there ought to be a consensus. We have not yet identified that consensus. Although some parties have commitments to it, a consensus has not been identified for the extension of the franchise to 16 and 17 year-olds in parliamentary elections, and we have no plans to legislate on extending the franchise to 16 and 17 year-olds.

Lord McConnell of Glenscorrodale: My Lords, one or two reasonable points may well have been made by the noble and learned Lord, but one of the premises on which many of us were prepared to support the transfer of legal authority for a referendum to the Scottish Parliament was that it would be part of the negotiations that no one could say after a referendum that the rules for that referendum had been fixed, whether by the Scottish Government or anybody else. Given that the Scottish Government command an absolute majority in the Scottish Parliament, these negotiations are therefore very important indeed. Not just on the issue of the franchise but on the issues of the timing and the financing of the different sides in a referendum, it is vital that the Government secure commitments from the Scottish Government that the rules for the referendum will be fair enough to ensure that all of us can accept the result afterwards. I would like an assurance from the Minister that the Government still have that as an objective in these final days of the negotiations.

Lord Wallace of Tankerness: I give the noble Lord the absolute assurance that our objective throughout has been to achieve a referendum which is fair, decisive and legal. As the noble Lord said, it should be a referendum where, at the end of the day and when the votes are counted, no one can claim foul play. I underline to the House the importance which we attach, and which I think the Scottish Government now attach, to the Electoral Commission having a very important part to play in the conduct of any referendum.

Lord Cormack: My Lords-

Lord McNally: I am afraid that we are at time.

Statute Law (Repeals) Bill [HL]
	 — 
	First Reading

A Bill to promote the reform of the statute law by the repeal in accordance with recommendations of the Law Commission and the Scottish Law Commission of certain enactments, which, except in so far as their effect is preserved, are no longer of practical utility.
	The Bill was introduced by Lord McNally, read a first time and ordered to be printed.

Small and Medium Sized Enterprises Committee
	 — 
	Membership Motion

Moved By The Chairman of Committees
	That Lord Evans of Watford be appointed a member of the Select Committee in place of Lord Mitchell, resigned
	Motion agreed.

Jobseeker's Allowance (Sanctions) (Amendment) Regulations 2012

Late Night Levy (Application and Administration) Regulations 2012
	 — 
	Motions to Approve

Moved By Baroness Stowell of Beeston
	That the draft regulations laid before the House on 4 and 9 July be approved.
	Relevant documents: 6th Report from the Joint Committee on Statutory Instruments, 9th Report from the Secondary Legislation Scrutiny Committee, considered in Grand Committee on 8 October.
	Motions agreed.

Official Secrets Act 1989 (Prescription) (Amendment) Order 2012
	 — 
	Motion to Refer to Grand Committee

Moved By Lord McNally
	That the draft Official Secrets Act 1989 (Prescription) (Amendment) Order 2012 be referred to a Grand Committee.
	Motion agreed.

Local Government Finance Bill

Bill Main Page

Report (1st Day)

Relevant documents: 4th and 7th Reports from the Delegated Powers Committee.
	Clause 1 : Local retention of non-domestic rates
	Amendment 1
	 Moved by Baroness Hanham
	1: Clause 1, page 2, line 4, at end insert-
	"( ) paragraph 9A (regulations about payments by billing authorities to major precepting authorities out of deductions from central share payments);"

Baroness Hanham: My Lords-

Baroness Anelay of St Johns: My Lords, I know that we have just returned from rather a long recess, but may I remind noble Lords that, in order to enable the Minister to move her amendments, it may be helpful to leave the Chamber rather quietly?

Baroness Hanham: My Lords, the amendments in this group concern the funding of business rate relief in enterprise zones. Enterprise zones will contribute to the growth of the local and national economy through a range of measures and financial incentives. One of those incentives is a discount on business rates. The discount will apply for five years and be available up to the state aid de minimis level for businesses that move into an enterprise zone before April 2015. The Government have committed fully to fund these business rate discounts and the amendments in this group will ensure that, through regulations, we are able to deliver on that commitment.
	Amendment 25 will give the Secretary of State powers to provide for the deduction of a particular amount from the central share, including by reference to amounts of rate relief awarded. This will allow billing authorities to deduct the cost of discounts in enterprise zones from their central share payments to the Secretary of State, thereby compensating them for the cost of those discounts. As this will reduce the revenue received by the Government, Amendment 25 also provides that the regulations will require the consent of the Treasury. Amendment 36 will then allow us to ensure that the compensation for the cost of the enterprise zone discounts is shared as appropriate between the billing authority and the major precepting authorities. It does this by allowing us, in regulations, to require the billing authority to make payments to major precepting authorities so that, where appropriate, those precepting authorities are also compensated for their share of the cost of the discount.
	The remaining amendments in this group are consequential on these amendments and, with this explanation, I hope noble Lords will be prepared to accept them.

Lord McKenzie of Luton: My Lords, I thank the Minister for her explanation of this group of amendments. I will just say at the start that we are of course faced on Report with quite a lot of government amendments-I think more than 50 to date-and not all of those flow directly from our Committee deliberations. We have absolutely no problem with the Bill being in the best shape it can be by the time it leaves your Lordships' House but, following our discussions today and the further reflection we can have before Third Reading, we reserve the right to pick up further issues if we have missed them in the deliberations to date. I have no problem with the particular thrust of these amendments but would just like clarification on one point. The noble Baroness referred to the off-sets in relation to enterprise zones, which is clearly sensible, and the off-sets in relation to discretionary rate relief. Do these provisions potentially cover off-set in any other circumstance?

Baroness Hanham: My Lords, these provisions are entirely to do with enterprise zones.

Lord McKenzie of Luton: I do not want to start Committee proceedings but do they not also cover, as the noble Baroness has said, discretionary rate relief?

Baroness Hanham: My Lords, these amendments deal with everything to do with the rate discount and how it is handled in enterprise zones. The discretionary relief comes into that as well.
	Amendment 1 agreed.
	Amendment 2
	 Moved by Lord Ahmad of Wimbledon
	2: Clause 1, page 2, line 10, at end insert-
	"( ) paragraph 37 or 38 (regulations about designated areas or classes of hereditament), if the regulations contain provision within paragraph 39 (payments to relevant authorities)."

Lord Ahmad of Wimbledon: My Lords, government Amendment 2 delivers on a promise made by my noble friend the Minister in Committee. It gives effect to the recommendation made by the Delegated Powers and Regulatory Reform Committee that regulations that include the provision under paragraph 39 should be subject to the affirmative procedure. Paragraph 39 allows regulations made under paragraph 37, and indeed paragraph 38, to make provision for a billing authority to pass retained income to relevant precepting authorities.
	Noble Lords will recall the debate in Committee about the appropriate level of parliamentary scrutiny for the detailed matters that will be dealt with in secondary legislation under this Bill. They may also recall that our careful consideration of the matters at hand in each of the sets of regulations expected under this Bill resulted in our making, from the outset, a number of regulation-making powers in this Bill subject to the affirmative procedure, in recognition of their significance and impact within the rates retention scheme.
	Our approach was supported in all but one case by the Delegated Powers and Regulatory Reform Committee, whose role it is to consider such issues. It has found in all but one case that the level of parliamentary control over regulations set out in the Bill to be,
	"appropriate according to the relative significance of the various powers conferred".
	Today, Her Majesty's Government are pleased to remedy that one exception identified by the Delegated Powers and Regulatory Reform Committee by bringing forward this amendment, which gives full effect to the committee's recommendation on this point.
	Amendment 3 goes further than the DPRRC's recommendation, as it would require any regulations prepared under paragraphs 37 or 38 to be subject to the affirmative resolution procedure, irrespective of whether paragraph 39 were applicable. That was not the intention of the DPRRC, and I do not consider it necessary. With that confirmation of the Government's positive response to the DPRRC recommendation, I beg to move the government amendment and ask the noble Lords, Lord McKenzie and Beecham, not to press their amendment.

Lord McKenzie of Luton: My Lords, I start by welcoming the noble Lord, Lord Ahmad of Wimbledon, to the Dispatch Box and our deliberations on matters of local government. We have no problem with Amendment 2, which we are happy to support. We tabled Amendment 3 because at the time it was drafted we had not seen the colour of the Government's money and their commitment to this, but we entirely accept that they have fulfilled the commitment that they gave in Committee. We are happy to support that and happy not to move Amendment 3.
	Amendment 2 agreed.
	Amendment 3 not moved.
	Amendment 4
	 Moved by Lord McKenzie of Luton
	4: Clause 1, page 2, line 21, at end insert-
	"( ) The Secretary of State must by 30th November 2012, and after consulting representatives of local government as he thinks appropriate, form a view on whether local authorities-
	(a) have been provided with sufficient detailed information regarding the business rates retention scheme; or
	(b) are likely to be provided with such further information on a timely basis before, or when receiving, the local government finance report;
	in order to enable all local authorities to set an informed budget and council tax for 2013/14.
	( ) If the Secretary of State forms the view that all relevant information has not or will not be provided on a timely basis then he must make an order under section 1(7) of this Act."

Lord McKenzie of Luton: Amendment 4 would impose on the Secretary of State a specific obligation to check the readiness of the business rates retention scheme. It requires the Secretary of State, after consultation with representatives of local government, to take stock of where deliberations have reached, the information provided to date to local authorities and that yet to be provided. It requires that to be undertaken by 30 November. The test is whether local authorities will each be in a position to set an informed budget and council tax for 2013-14 in due time. If-perhaps surprisingly-the Secretary of State is not satisfied that sufficient information is or will be available to local authorities in due time, it requires him to use the powers under the Bill to defer introduction of the system.
	That picks up the theme of an amendment moved in Committee by my noble friend Lord Smith and is by way of a reality check. It is specifically designed to enable the Minister to give us a full update on where things stand and the timetable for completion of the process. We trust that she will be able to satisfy us on this, as our alternative would be to press for a deferral at Third Reading.
	Noble Lords will note that we have a number of technical amendments on the Order Paper but, given where we are, our main areas of concern on which we seek to focus at Report are: the readiness of the system; the process of resetting; the level of the local share of business rates; and how the central share is to be deployed. We acknowledge that a considerable amount of work has being undertaken in recent months. Following the 155 pages of a simplified default council tax support scheme, we have had 252 pages of a technical consultation on the business rate retention scheme, which-alarmingly, as it turned out-flushed out a lot of the detail of the scheme. We have also had the benefit of seeing the presentation material used in the department's roadshows.
	However, the technical consultation-a truncated consultation-ran until two weeks ago, until 24 September. It poses 83 questions on which views are sought. Some of the matters for discussion at the end of the consultation are: changes to the number of components used in the formula grant process; the methodology of calculating the local government spending control total; what happens at the end of the current spending review; the model boardings approach to concessionary travel; changes to the use of population scarcity indicators; changes to the relative resource amount within the formula grant; distribution of grants rolled in; methodology of rolling in council tax support grant; the approach to floor dampening; police funding; determining business rate aggregates; determining proportionate shares; and determining major precepting authority shares-as well as the levy and safety net criteria.
	Some of these issues may be seen as routine and no more than the usual process leading to the local government finance report, but some are clearly not and relate directly to the transition from the current basis to the new retention scheme. However, they have a particular significance because, as we know, if left to this Government there will be no resetting of the system until 2020, so the consequences of some of the decisions to be made will endure for at least seven years. The issues raised in the consultation do not all lend themselves to a ready approval of the varying propositions. Different councils will be affected by them in different ways and some are more controversial than others. The challenge of distilling and considering responses, if undertaken genuinely, will take some time. When will the Government publish their full response?
	The Minister will be aware of the major concerns expressed by the LGA about aspects of the proposals in the consultation and she may be able to comment on the substantial improvements that, even at this stage, it says are essential to be made. Its concerns include the initial holdback of £345 million to fund the safety net and capitalisation, which is effectively a further £345 million cut in local authority spending for 2013-14. Will the Minister release before Third Reading the details of the calculation which support this level of holdback? Its other issues are: the arbitrary further topslicing of the early intervention grant; including an element of growth in the business rate forecast for 2013-14; the impact of the 80:20 split for shire districts; and the funding of adjustments, particularly those relating to the settlement of appeals against rating valuations for periods prior to 2013-14. There are of course further amendments on that issue on the agenda.
	Further issues include: how the AME money from SR2010 is to be applied for the benefit of local government in 2013-14 and 2014-15 and the prospect that the proportionate shares of business rate income calculation should be revised to mitigate the serious risk that large numbers of authorities will face a significant loss of funding on entry to the new system. The funding removed in respect of academies' central functions is, it is suggested, too high and the per pupil handback for academy pupils too low. The establishment of pooling arrangements should be more flexible. Can the Minister tell us when and how each of these issues is to be addressed? Can we know that before Third Reading?
	Councils are, of course, faced with the practicalities of these proposals: having to set budgets, face cuts and set council tax collection systems in place to ensure collections. The greater the uncertainty, the greater the likelihood of their building reserves to cover those uncertainties. There is also a raft of regulations, which are due to underpin the new systems-regulations which, for example, define non-domestic rating income, cover payments between billing and major precepting authorities, provide for levy and safety net payments and determine the basis on which any levy account balance is to be distributed. When will these be ready and when will they be laid? When will local authorities know their baseline funding levels, tariffs and top-ups?
	We have received-yesterday, I think-an indicative timetable for regulations but virtually none of it will reach us before we have finished Report. Of course, we all know what indicative means: something to put out when we do not quite know the detail. There are also uncertainties around council tax support, which will of course affect council budgets. Some councils will respond, and are responding, to the underfunding of this support by yet further restrictions on services. Yet apparently at almost the 12th hour there is, we understand, the prospect of a new transition grant if councils seek to protect the poorest. Perhaps we can know the current position on that. The explicit purpose of this amendment is to cause the Secretary of State to take stock before proceeding with all of this in April 2013. More particularly, it is to give the Minister the opportunity to explain to use in detail today how everything is to be in place for local authorities in time for them to set their budgets. We have drawn back from seeking to insist on a deferral of the scheme but we are entitled to have the detail if we are not to see this through to Third Reading. I beg to move.

Lord Smith of Leigh: My Lords, I support my noble friend's amendment and thank him for taking up the amendment that I moved in Committee. I need to declare my interest as leader of a local authority. I must say that I have been dealing with local government budgets for about 30 years now, and the current year is the most difficult one that I can recall. That would be so even if this Bill were not around, because already we have huge challenges with the economic circumstances. As my noble friend said, police budgeting has changed and not until after 15 November will we know who we are going to face as our new police and crime commissioner or what their views will be. The settlement date seems to be getting later every year; the last that I heard was that we may get it in the post as a Christmas card. For those people interested in what is going on in Birmingham this week, we understand that there is going to be a new council-tax-freeze grant in the system. How might that work? We read in the papers that there are probably going to be further cuts to public spending and that local authorities will perhaps bear more than their fair share, as has happened in the past.
	I thought that my noble friend dealt with all the issues in the Bill itself. However, each authority is also out to consultation on local government tax support schemes. The timescale for that is three months, and most put it out over the summer period and therefore will come back to it probably in November, or before the end of the year. Obviously we will need to respond to comments made as part of the consultation and reassess what we are doing. We have technical problems with making sure that our computers work with the new systems, whether on business support or on council tax, and we need to ensure that we have the information that my noble friend asked for. It was helpful in a sense to see the timetable that the Minister sent round, but government timetables have been known to slip in the past. As the House was hearing earlier, government departments have also been known to get things wrong, and we may need to review some of this system.
	Time is becoming critical and I hope that the Minister will seriously consider the points that we are making; we are not making them simply to defer the Bill. If the Bill is going to be successful, as presumably the Government hope that it will, then we need to get the system in place properly. We need answers to some of the questions that we are raising.

Lord Tope: My Lords, as this is the first time that I am speaking on Report, I suppose that I, too, should declare my interest as a member of a London Borough Council and indeed as one who has had to deal, as leader of the council and leader of the opposition and before that, with budgets for probably even longer than the noble Lord, Lord Smith. He says that this year is probably the most difficult that he can remember; my only response to that is to say, "So far". I am not sure that it is not going to get any better or easier.
	I understand why the noble Lord, Lord McKenzie, has tabled this amendment; indeed, I am grateful to him for doing so. As he has rightly said, it follows on from the amendment moved by the noble Lord, Lord Smith, in Committee to seek a postponement. We on these Benches did not support that amendment and still do not. I think that we would all agree by now, whatever our views about this legislation and the position that we are in, that it is in no one's interest at this stage to postpone. I therefore hope and believe that when the Minister comes to reply, she will be able to give us the reassurances that have been requested that, late though the process is-we all acknowledge that it is later than originally intended and certainly later than any of us would wish-we are as confident as one ever can be that it will run as smoothly as it can. If she is not in a position to answer today the very detailed questions that the noble Lord, Lord McKenzie, has put, I ask her to undertake to do so as soon as possible and, obviously, before Third Reading.

Baroness Hanham: My Lords, following on from what my noble friend Lord Tope said, the noble Lord, Lord McKenzie, has a happy style of producing a long list of questions that he peels off at a fast rate. It is not always possible to answer all of them at the same time. I readily agree with my noble friend Lord Tope that if we miss anything, we will write directly afterwards.
	Like others, I am grateful to the noble Lord for explaining his amendment. It is probably worth saying that as a former leader of a London local authority, I understand the complications of late publication of the draft local government finance report and the implications it has for the budget process. However, as has been said, there is late and there is late, and while this may be slightly later than some, it is not that far out of kilter with the other announcements. I recognise that delay in the publication of the draft local government finance report would make it more difficult for local government regardless of whether the rate retention scheme did or did not exist. The existing formula grant and the new arrangements for rates retention both rely on our being able to determine how much funding local authorities are entitled to. Indeed, I think that the noble Lord said that. In the old world, the one we are passing at the moment, that means how much formula grant authorities are to receive, and in the new world, how much revenue support grant they will get and how much funding through the rates retention scheme. Under either system, the answer to the question depends on changes to formula, and potentially on decisions that might be made in the Autumn Statement, so authorities face the same delays and the same problems.
	I do not pretend for a moment that any of this is ideal, but delaying the implementation of the rates retention scheme, which potentially could be the outcome of Amendment 4, although I know that the noble Lord has said that he does not want to hold anything up, would not provide authorities with any greater certainty about the funding they would receive. Whichever way we do this, either in the old way or in the new way, they still need the information. Also, it will not assist them greatly as they plan their budgets for 2013-14. So while I understand the concerns of local government and of noble Lords, we would be kidding ourselves if we thought that there would be any difference if we were still in the situation of the formula grant. As I have said, the noble Lord has put a string of questions, some of which will be answered when other amendments are moved; they will pick up on some of the issues. Perhaps I may come back to those later.
	While we are not able to confirm funding levels for individual local authorities until the start of the consultation on the provisional local government finance settlement, the Government have actually provided a lot of detail and supportive information. It has been pouring out all summer. Discussions have taken place with local government representatives, including the Local Government Association, and we will publish very shortly an additional exemplification on overall funding to enable individual local authorities to develop their modelling for the budget processes. In mid November we will also start a consultation on the data that the Government propose to use when calculating the settlement. This is an integral part of the settlement process that will throw light on some of the points raised by the noble Lord. We will also be publishing in draft all the key regulations that authorities will need to take into account later this month or early next month, and indeed I think that the noble Lord has probably seen those that have been done already.
	The noble Lord, Lord Smith of Leigh, returned to the attack on council tax support. Perhaps I may duck that for the moment because it is going to be very relevant to the next part of the Bill. We will be able to discuss the issues at length when we reach that point.
	The noble Lord, Lord McKenzie, also asked about a timetable for responding to the consultation. The Government's response to the consultation exercise will form part of the local government finance report. It will set out how we will set up the rates retention scheme and the detail of elements, including the tariffs and top-ups. While what we are talking about will be later than is ideal, the system stacking up behind it is that local government will have practically all the information it is going to need, just not the dots and crosses, by the time the settlement is announced. As I say, I do not take any exception to the fact that it has been drawn to our attention that the settlement will be late. It will be.

Lord McKenzie of Luton: My Lords, I thank my noble friend Lord Smith for his support for this amendment. He and the noble Lord, Lord Tope, and, indeed, the Minister are the voice of practical experience on local councils and are therefore particularly valuable. My noble friend Lord Smith referred to the fact that just this week we had further input into the system with the council tax freeze grant. It is interesting that the Secretary of State can find the money for a council tax freeze grant at the same time as lopping the best part of half a billion pounds off council tax support, but these are issues that I am sure we will come on to. The noble Lord, Lord Tope, said that it is the most difficult so far. I think we have to watch this space under the new system.
	I accept that the noble Baroness has given us some further information on timing, but I would appreciate it if she would pick up the point made by the noble Lord, Lord Tope, about reviewing all the issues that we have raised so that we can have as complete an answer as possible before Third Reading, which is our last opportunity to deal with this.
	The noble Baroness said that it would be as bad if we were staying with the current system and were not changing the system. The crucial difference is that what is happening under the new system is, if the Government have their way, going to be set in stone for the best part of seven years. I genuinely suggest that that is a different perspective and a particular challenge for all local authorities. Having said that, and on the assurance that we will be getting further information before Third Reading, I beg leave to withdraw the amendment.
	Amendment 4 withdrawn.
	Amendment 4A
	 Moved by Lord McKenzie of Luton
	4A: After Clause 1, insert the following new Clause-
	"Independent review of the local retention of non-domestic rates
	( ) No later than three years after 1 April 2013 the Secretary of State shall cause to be undertaken a comprehensive independent review of the application and outcome of the local retention of non-domestic rates provisions.
	( ) Such review shall include an assessment of the extent to which available resources are meeting the spending needs of individual authorities, whether baseline funding levels and tariffs and top up, remain appropriate and fair, and the extent to which the system is incentivising growth.
	( ) The review shall include a recommendation as to what changes, if any, are required under Part 5, Schedule 7B LGFA 1988, in order to ensure local authorities have adequate resources to meet spending needs."

Lord McKenzie of Luton: My Lords, this amendment requires the undertaking of an independent review of the business rate retention system within three years of its introduction. It specifically requires a recommendation about whether there should be a resetting of the system. We have later amendments-Amendments 79 and 81-that propose additional and alternative approaches to resetting. We recognise that the changes introduced by the business rate retention scheme represent a major change to the system used for the funding of local government, and it is, in part, a step into the unknown. The changes are being introduced at the same time as the localisation of council tax benefit, together with a cut in its funding, and so far as the overall resources for local government are concerned, the change is taking place against the backdrop of a sharp reduction in the overall local government spending control total, given a further twist in July's proposition that government should hold back substantial funds to pay for the new homes bonus capitalisation and the safety net, not to mention the early intervention grant scheme.
	There is a fundamental switch in method. Under the current system, the formula grant largely determines the extent of shares of government funding for local authorities and, while accepting that it is somewhat opaque, it has the considerable merit of reflecting local needs and resources in the allocation of grant. In the new world, the revenue support grant will play a diminishing role with the retention of 50% of the business rates being the driver of resources. Of course, not all local authorities have an equal ability to grow the business rate base. Areas such as Luton, which is highly developed with tightly drawn boundaries and significant unmet housing need, simply do not have the land available for the continuous development of additional business. It is accepted that the Government are seeking to rebalance resources at the outset of the scheme through the system of tariffs and top-ups, essentially comparing business rates collected with formula grant allocations. However, once set, it is proposed that tariffs and top-ups will not be changed or reset, other than uprated by RPI, until 2020 at the earliest.
	The review which this amendment would introduce could cause an earlier reset than 2020, but would not inevitably lead to one. In that sense, it is more modest than Amendment 81, which would actually require a reset every three years to coincide with each spending review period. The Government argue that the longer the period between resets, the greater the certainty in the system and the greater the incentive. All other things being equal, there is of course some merit in this argument. It begs the question of how much incentive there is in the system in any event, given the complexity of its diverse components, and whether that incentive presents itself to all local authorities equally. Conversely, the argument for an earlier and shorter period between resets in part expresses the concern that the setting of the tariffs and the top-ups in the first place may not be fair to all authorities. Each authority's starting point under the new system will be based on what their share of the overall funding available for 2013-14 and 2014-15 would have been under the current formula grant system but, of course, the formula has been flexed, for example, to increase allowances for sparse areas. We know that the LGA has expressed strong reservations about how the proportionate shares of business rates are determined, another key component of the calculation.
	However, even if we accept for the purposes of debate that, at the start of the system, the Government have achieved their objective of no local authority being worse off as a result of its business rate base at the outset, and that there are adequate protections to ensure that all authorities can maintain services for local people-an assertion we reject-why would it follow that this position can be maintained by just uprating the tariffs and top-ups by RPI until a reset? The proposition would seem to take no account of changes to the data which feed the formula in the first place, population movements being but one. It is of course possible that the manner in which the central share is to be deployed will counter any negative redistributive effects of the system, but we have only silence on this issue beyond the first two years. I am not optimistic about that.
	Faced with the prospect of limited opportunities for raising extra revenue from council tax, a further freeze, a 2% threshold on referendum provisions, increasing restrictions overall on local government expenditure control totals, the central share of business rates being increasingly deployed otherwise than through formula grant and therefore, inevitably, on the basis of needs, poorer local authorities will only be able to look to their top-up, which is fixed in real terms, and any growth that they can muster in their business rates to meet their expenditure needs. For some, the retention of a share of the business rate growth will be fine, but for those who do not have the same opportunity, due not to ambition or leadership, but perhaps just the geography of an area, and those who also have a higher percentage of their spend currently met from grants-the more highly geared councils-the problem will be compounded.
	We know that draconian cuts are already making it near impossible for many councils to deliver adequate services. The growing demand for some of those services, adult social care in particular, will make matters worse.
	I stress that the amendment also requires the review to look at the issue and the extent to which the business rate retention scheme is actually incentivising growth. There are concerns that the level of the local share, at 50%, is too low, and that the overall scheme, as I said, is far too complex to produce a real incentive.
	Under the Government's proposal that there should not be a reset until at least 2020, these challenges could be left unaddressed for at least seven years. This, I suggest, is far too long. We should at least be taking stock after three years of the system so that, if necessary, it can be recalibrated. It will doubtless be argued that the Secretary of State has the ongoing power to do this anyway. I accept that there is the technical power, but some independent review of how it is working should be a necessary safeguard. This is all we seek by this amendment. I beg to move.

Lord Smith of Leigh: My Lords, again I support my noble friend's amendment. This Bill is a huge gamble. It is the most radical shake-up of local government finance since the poll tax. Noble Lords may think that if there had been a review of the poll tax, we would not have had the riots and the other problems which led to getting rid of it. My noble friend identified two fundamental issues. First, will the proposal enable the system to be fair? Will top-ups and tariffs work fairly for all authorities-those paying the tariffs as well as those which might be in need of top-ups? We need to know that. Secondly, will it be flexible enough to meet adjustments in the system when the pressures are bound to rise?
	As my noble friend has said, this proposal is being introduced at a time of extreme turbulence in the world of local government. We have the reductions in public spending, which are bearing heavily on local authorities. The timing is not brilliant for that. We also are in a period of economic uncertainty. In Committee, the noble Earl, Lord Attlee, mentioned that local authorities should try to encourage business in their areas. Perhaps I may remind the House that that is what most local authorities have been trying to do for many years but under current circumstances it is very difficult.
	Over the summer, noble Lords probably heard about the problems of JJB Sports plc, which is located in my authority, Wigan. It was once very profitable and employed a large number of people across the country. The head office and its staff were in my authority but clearly it will not be an employer for very much longer.
	Again in Committee, I mentioned that the impact is not just on the private sector where fundamental changes are going on. In Greater Manchester, we have learnt of a review of the provision of acute hospital places. That will almost certainly lead to the closure of two, if not three, district general hospitals. District general hospitals are not only big employers in local areas but, through their ownership of land and property, they are major contributors to business rates.
	Therefore, things can change by government policy. If we wait until 2020 for this review, there could be some significant shifts. An independent review is called for. The Government have put down some noble objectives behind the Bill. Let them see whether those objectives are being met and not run away from them.

Lord Williamson of Horton: My Lords, in this House we are perhaps tempted to call for reviews of many things that we have slight doubts about, and sometimes we have too many of these reviews. However, in this case I support the amendment. I note that later on the Order Paper we have Amendments 79 and 81, which go further than this. They would involve a three-year repeating look at the situation, whereas this amendment proposes that there should be an independent review after three years.
	I support Amendment 4A because, as the noble Lord, Lord McKenzie, made clear, the situation between local authorities is not even. They have a differing ability to generate more resources from business rates. This is determined by a lot of factors which they do not control. The most obvious factor is geography. Another is that the business rates relate primarily to buildings and structures, whereas some authorities, if they were doing their best for the economy, might put their emphasis on economic activities such as IT and particularly tourism where they will have expenditure but will not necessarily generate more in the form of business rates. They will spend money on advertising, communications and transport and so on, but they will not get back much in the way of business rates because they are not putting up big buildings and nor are their citizens.
	The result of what we have here running for seven years would be changes in local authorities' resources, which would in due course have consequences for their services and council tax payers. That would very considerably between the local authorities. I know that there is a biblical precedent for seven lean years and seven fat years, but if I was in the local authority and had seven lean years I would be pretty unhappy about it. It is therefore perfectly reasonable to have an independent look at this. The terms of the amendment are pretty moderate, and I hope that the Government will accept it.

The Earl of Lytton: I support this amendment in general. In doing so, I must declare an interest, as this is the first occasion on which I have spoken at this stage of the Bill, as a practising chartered surveyor and a member of professional bodies with a particular interest in the non-domestic rating system.
	As the noble Lord, Lord Smith of Leigh, pointed out, we are in an era of most unparalleled uncertainty. One of the greatest areas of uncertainty relates to non-domestic property and its valuation. We have at the moment a valuation list that, as I have said at earlier stages in this Bill, is based on the peak year antecedent date of 2008. It is commonly understood that values over much of the non-domestic property world have fallen materially since then. Possibly the only exception is with supermarkets, which are popularly assumed to pay too little in rates-but I leave that to one side. My concern is with the small to medium-sized businesses that are faced with large rate bills. In the course of the last month, I happened to have reason to attend to a property in the Guildford area where the rent had been reduced by negotiation between landlord and tenant from some £15 a square foot to £5 a square foot, so that the tenant, on a 3,000 square foot building, was paying around £15,000 a year, while the rates payable were over £18,000 a year.
	Decisions about the occupation of business premises are increasingly being made as a result of that in effect unavoidable impost on the property and the cost of occupation. Businessmen are now looking, as they did in the early 1990s, when we were here before, at the overall costs of occupation-the rent, the rates, the service charges, and so on. So if the one bit of the system that is not negotiable is the non-domestic rates, that leads to inherent instabilities in the process and a strong impetus to try to avoid that imposition by whatever means. It has ever been thus that when businesses or any other taxpayer feel that they are being unfairly treated and there is an unreasonable impost, things start to happen. There is no plumbing the depths of ingenuity that might be devoted to this particular problem by professional bodies, rate payers and accountants, as well as various other people, all of whom are concerned with the long-term financial well-being and possibly the very survival of the business.
	Why do I raise this? I do so because we are dealing with the local retention of non-domestic rates and the change from having a collection agency process on the part of local government whereby it hands over part of the non-domestic rate income to central government to a process, whereby local government has a direct stake in the amount that is gleaned locally. Given the changes that have occurred in value since 2008, it will be a huge problem to predict rate income over time, not just because of businesses and their advisers doing some fancy footwork to see whether they can avoid the problem but because of insolvencies and the fact that properties that fall in value may become prey to other pressures such as redevelopment. Then, of course, you have another possible shift to a different type of use. Although I would like a review to be much further reaching than the one proposed by the noble Lord, Lord McKenzie, there must be an independent review of how this system is working. I would hope that part of the feedback into that review considered the uncertainties about what is happening with the tax base of non-domestic rates. For that reason, I support this amendment as far as it goes.

Lord Palmer of Childs Hill: My Lords, I take a contrary view, as this amendment would add uncertainty to a situation that is already too uncertain. I believe that local authorities and the businesses to which the noble Earl referred want certainty most of all. They want to know what the rates are and roughly what local authorities will be able to retain. There will be a problem with valuations and the changes experienced by businesses. The noble Earl considered how the measure would affect businesses, but we are talking about the local retention of business rates by the local authority and how that affects that local authority's expenditure. With respect, I suggest that the measure's effect on businesses will be a problem whatever system we have: the current one or another. As the noble Earl rightly said, many accountants, surveyors and the like will look for ways to avoid paying taxes for all the right reasons, whatever the system. Therefore, this amendment would do no more than add further confusion and uncertainty to an already uncertain situation.

Lord True: My Lords, I take a similar position to that of my noble friend who has just spoken but I have a different perspective. I declare an interest as leader of a London local authority-the worst-funded local authority-which will be a tariff authority under the system put forward. One might therefore conclude that I would look forward to a review of these matters. In the unlikely and unfortunate event that the party opposite finds itself back in power, I take this amendment as a pledge that it will conduct a review.
	I spoke at some length in Committee on the philosophy of these questions so I do not intend to detain your Lordships on the same issues now. My authority calculates on the basis of the information that has been provided so far. Through my noble friend the Minister I thank officials for their courtesy in contacting my officers. My authority currently expects to be about 17% adrift of our business rate target. We have absolutely no prospect whatever of growing business rates to get out of that hole, which is a continuation of a historic hole in which my authority has sat for a long time. That ought to lead me to say, "Yes, let's have this review", but, actually, that would be a rather mechanistic approach. I am not happy at all, as I made clear in Committee. Nor am I happy with the idea that there should be no reset before 2020. That position is absolutely unsustainable and there has to be a system whereby these matters are reviewed before then. I would like them to be looked at before 2013, as the amendment suggests. However, I thought that I heard my noble friend say in Committee that, although she would not be prepared to entertain an overall, general reconsideration of the system, there would be some kind of ongoing consideration of problems and issues as they arose, and there would not always be a flint-hearted, Treasury-style response, although there would be many such responses to questions that might arise.
	I agree with the noble Lord, Lord McKenzie, that we need to know more, and I am grateful for the assurances from my noble friend that we will hear more. My feeling is that if we park this away and do not have a review until 2013, everyone will say, "Oh well, there will be a review one day", and nothing will happen. We need an ongoing dialogue, and I shall listen carefully to what my noble friend says in response. I hope she will indicate that there will be flexibility and a continuing readiness to listen, not only before 2013 but after, and that she will agree that 2020 is not the date before which no move will be made.

Lord Tope: My Lords, my noble friend referred several times to a review in 2013. While I am sure that he would like to have a review in 2013-would not we all?-I suspect that he might have meant 2016, which is the intention of the amendment. A review in 2013 is not a practical possibility, even if it were desirable.
	My noble friend also said-and I rather agree with him-that the amendment from the Labour Benches is possibly the first firm election pledge that we have heard from the party opposite. I must say that I took it in a slightly different way. Although we will certainly have a new Government, of whatever composition, by 2016, this amendment seems to be an expression of doubt that the party opposite will be in a position to have a review even if it wants one. I am not quite as confident as my noble friend Lord True regarding the Labour Party's intentions here.
	My noble friends on this side have made the point that a review may very well be desirable, and of course there are a lot of uncertainties in introducing something as far-reaching as this-of course there must be, they are unavoidable. The review would also come in uncertain times, to say the least. However, I very much doubt whether we need to have in the Bill a binding commitment to a review in 2016. As my noble friend said, it would introduce yet another uncertainty. People would say, "The review is going to come. What will it say? Shall we try and hang on for another year or two?". A review may very well be desirable at some point. It may happen in 2016, before that or afterwards. If the Government of the day, whoever they are, were able to carry out a review at such a time, in such circumstances and with such terms of reference as they chose, I would caution against having it as a legislative requirement in an Act of Parliament, three years in advance.

Baroness Hanham: My Lords, I particularly thank my noble friend Lord Tope for his final comments. We do not believe that a set review, with a timetable in the Bill, is the right way to go about this. We all accept that there will be huge volatility in the system from now on, but I have to say that there would have been huge volatility whatever happened, because the whole economic situation is such that it is unavoidable that local government could escape any changes at all. Indeed, I well recall under Labour Governments and indeed under my own Government being outraged and upset as money swam away from us to other parts of the country. Therefore, the idea of local government money being different in different areas and changing from time to time is not new.
	We do not think that the proposal to set the time for a review is sensible. As my noble friend Lord True said, this is something that will affect each local authority. They will have access, as they always have had, to the Government to make representations either individually or on behalf of themselves and others to discuss their needs and resources under the retention scheme. If they are significantly out of kilter, then of course the Government will listen to that, but I do not think that an independent review of the whole system is really going to achieve that. We will see how this goes and listen as and when any local authority wants to talk to us about it.
	In addition, if we constantly-and even three years is pretty constant in terms of the changes being made-review the funding arrangements within the rates retention system, looking at tariffs, top-ups, levies and baseline funding, we will completely undermine one of the principles of the scheme, which is that local authorities should invest and benefit from growth. The noble Lord, Lord Smith, said that the scheme will differ across the country and that some places will find it easier than others but, generally speaking, I do not think that a review in three years' time is going to help us with that. For this growth to work at all, we have to understand that the rewards from investment need time to take effect and a longer-term view will be necessary for the investments to be worth while. By resetting the system too often, you simply move away from that situation.
	The Government are satisfied that they are setting out the scheme until 2020-that is, with a reset after seven years. That will enable local authorities to understand what they are able to keep and the proceeds that they are going to be able to initiate to stir up and improve local businesses and to get the economy flowing in their area. I hope the House will understand that we do not think it is right to set a formal time limit for reviewing the system, but clearly with a new system of any sort the Government are not simply going to say, "Well, there you are. Thanks, that's it. We have no more interest in this". That is clearly not the situation, and certainly we will always be open to having discussions as the scheme develops. With that, I hope that the noble Lord will feel able to withdraw his amendment.

Lord McKenzie of Luton: My Lords, I thank all noble Lords who have spoken in this short debate. I am sorry but not surprised at the response from the coalition Benches. In particular, in responding the noble Baroness went back to the mantra of saying that the scheme has to run until 2020 to ensure that there is an appropriate incentive, yet at the same time she said that the Government are going to keep it under review. The purpose of setting down the need for an independent review after a fixed period is, in a sense, to force the Government of the day, whoever they are, to take stock of where things are at that point. Otherwise, should this Government continue after 2015, there is a risk that nothing will happen until 2020. I thought that the position taken by the noble Lords, Lord True and Lord Tope, was, "Yes, give me a review but just not now or just not by this mechanism". If not by this mechanism, what will force the review? Of course, there will be ongoing discussions and representations-that is an automatic part of government business. However, that is not the same as saying, "We have a new system here". We are placing great reliance on calculations done for tariffs and top-ups right at the start of the system and those will be locked in place for a minimum of seven years and potentially longer. That does not seem sensible to me.
	That does not address the issues that the noble Earl, Lord Lytton, made about the volatility of what is happening in the valuation of property and the domestic rating system generally. Although we had some very valuable input from the noble Earl in Committee about what is happening in that system where it is administered by central government, the risks are increasingly with local government. To allow that to continue without some formal check for seven years, or maybe longer, does not seem right to me.
	I am grateful for the support of the noble Lord, Lord Williamson, on this. As he said, other amendments go further, and this is a very moderate amendment. He made the important point that growing a local economy does not necessarily always equate with growing the business base rate, particularly as high-tech matters come into play.
	As ever, the noble Lord, Lord Smith, put his finger on the issue. This is a huge gamble in the new system. We need to ensure that it is fair and flexible, and not only at the start of the system-and we would challenge that it is. However, even if it is, we need to ensure that fairness is maintained throughout the period before it can be readjusted by way of a reset.
	The noble Lord, Lord Palmer, said that it was building uncertainty on uncertainty. I do not accept that. The right of the Secretary of State to change things on a yearly basis is embedded in the Bill. We know that the current one is not likely to do that and would not do it before 2020. This amendment simply requires the process to review the system along the way. We will not have a meeting of minds on this so I would like to test the opinion of the House.

Division on Amendment 4A
	Contents 198; Not-Contents 220.
	Amendment 4A disagreed.

Schedule 1 : Local retention of non-domestic rates
	Amendment 5
	 Moved by Lord Ahmad of Wimbledon
	5: Schedule 1, page 20, line 33, at end insert-
	"(ba) amounts received by the Secretary of State in the year under regulations under section 99(3) (treatment of surplus or deficit in collection fund) that make provision in relation to non-domestic rates,"

Lord Ahmad of Wimbledon: Before moving the amendment on behalf of my noble friend Lady Hanham, perhaps I may take this opportunity to thank the noble Lord, Lord McKenzie, for his warm words of welcome to the Dispatch Box. The noble Lords, Lord Smith and Lord Tope, talked of their respective experiences in local government. While I cannot claim to have many decades of local government experience, I can certainly claim to have single decade, which I hope will add in some way to the wisdom of this debate. I am fully aware of the great experience of local government which exists in your Lordships' House.
	Throughout this year, officials in the department have met local government finance officers to discuss how to operate the rates retention system. During those discussions, local government has often asked that rates retention be operated in practice through a system currently used for council tax.
	Under local government's preferred approach, billing authorities will estimate their rating income for the coming year, and that estimate will then set the amounts to be paid to central government for the central share and to precepting authorities for their share. If the amounts actually collected in the year are different, those surpluses or deficits are rolled forward into future years. In this way, precepting authorities have certainty that their share of the income will not change during the year.
	This method of operating the collection fund system is familiar to local government and has worked well for council tax. The draft regulations that we have placed in the House Library are based on the use of the collection fund in this way. The amendments ensure that we have the necessary powers and directions as to information and calculations to deliver the collection fund model wanted by local government through the regulations. With this explanation, I ask noble Lords to accept the amendments in this group.

Lord McKenzie of Luton: My Lords, I thank the Minister for his explanation of the amendments, with which I do not believe we have a problem. Perhaps he might just clarify a couple of matters. First, on the change from "paid" to "payable" in several places, I am trying to understand the extent to which the "payable", being an accrual concept, takes account of losses on collection, bad debts et cetera. Obviously, "paid" is in a sense a cash concept, whereas "payable" is something a little different.
	Secondly, Amendments 5 and 6 contain references to debits and credits required under Section 99(3) of the Local Government Finance Act 1988. Might the Minister expand a little more on that? Thirdly, on Amendments 26, 27 and 28, there is a switching of the definition to rating income from the local share. Perhaps the Minister could expand also on the reason for that.

Lord Ahmad of Wimbledon: I thank the noble Lord for his questions. I am sure that he will excuse me if I do not know the exact detail on some of the amendments, but I shall certainly ensure that he is written to in this regard. On "payable" and "paid", I believe that one would refer to past circumstances and the other to the future, but, again, I shall ensure that the noble Lord is written to on the issues that he has raised.

Lord McKenzie of Luton: I am grateful to the Minister. If he could assure us that we might get that response before Third Reading, it would be really helpful.
	Amendment 5 agreed.
	Amendment 6
	 Moved by Baroness Hanham
	6: Schedule 1, page 21, line 16, at end insert-
	"(za) payments made by the Secretary of State in the year under regulations under section 99(3) that make provision in relation to non-domestic rates,"
	Amendment 6 agreed.
	Amendment 7
	 Moved by Lord McKenzie of Luton
	7: Schedule 1, page 21, line 29, at end insert-
	"( ) Such use for the purposes of local government in England must be on a basis which reflects the spending needs of local government and the resources available to it."

Lord McKenzie of Luton: My Lords, this is a partial rerun of an amendment from Committee, because a significant issue remains in our minds, which is lacking in clarity. This is the use of the central share and the principles that will determine how it is to be applied on an ongoing basis. We understand and accept that the central share for 2013-14 and 2014-15 will be used for revenue support grant and that, for the first of those two years at least, the central share is likely to be insufficient to meet the full RSG amount and that it will need to be topped up. The RSG, as I understand it, is the spending control total minus whatever the local share is. The approach to the revenue support grant is one that we would recognise, have come to love and of course completely understand. It is not only an issue of the quantum of the central share but the basis on which it is to be paid.
	Given that the revenue support grant becomes discretionary under the scheme, there would appear to be no criteria governing the distribution of the central share and nothing to say that it has to reflect the needs and resources of local authorities, which is what this amendment requires. The statement of intent issued in June this year by the Government makes clear that the central share will be used by central government, in its entirety, to fund to the local government sector. Presumably that means that amounts currently met from any departmental dell can be met from the central share; for example, the dedicated schools grant. Is that the case and is that the intent? It is not a question of new money going to local government from the central share, which itself is money that is raised by local government.
	We are close to signing off this legislation, which is why we seek as much information as possible at this stage on this issue in particular. This is particularly because of the Government's stated intent that they do not wish to see a resetting of the system, at least until 2020, subject to the debate that we have just had. That is notwithstanding of course that we remain in the dark about how the central share is to be used other than that it is to be used for the purposes of local government in England. The fear is that, with further cuts in the offing, the revenue support grant will be diminished, so that the balance of the central share will increasingly be deployed on some other basis, whatever it is called. In particular, the concern is that the revenues raised by local government will increasingly be used to displace spending that is, and has previously been, met directly by central government. Although some of the funding from the central share, at least in the early years when payable by revenue support grant, will reflect the relative needs and resources of local authorities, there is no assurance that this will continue to be the position in the future, except to the extent of tariffs and top-ups going forward.
	This amendment simply lays down the requirement that the use of the central share must be on a basis that reflects the needs and resources of local government. It is an opportunity for the Government to let us know now the basis and principles that they wish to see govern the application of this amount-what will determine which elements of government spending will be diverted through the central share, and presumably the local government finance report process, and what will be dealt with as now. I beg to move.

Lord Shipley: My Lords, I feel that this amendment is actually extremely important. I draw the Minister's attention to a report by the Institute for Fiscal Studies, which has confirmed that councils in the north of England are having to cut spending at almost three times the rate of councils in the south. In absolute terms of course, many councils in the north receive more revenue support per head than councils in the south, and will go on doing so, but then their needs in many places are also greater. The principles of resource equalisation continue to matter greatly, if we are to meet need fairly across the country.
	This problem of deeper cuts in the north would have occurred had a Labour Government been elected in 2010, not least because Labour had plans to dismantle working neighbourhoods funding, worth several million pounds a year to many councils. However, I support the aim behind Amendment 7, because it maintains the principle of allocating spending against need and against the availability of resources, which I fear is increasingly in danger of being lost sight of, given recent settlements.
	I hope that the Minister will be able to accept the amendment, or at least indicate agreement to its spirit: to ensure that resource distribution reflects the principles of need and equalisation. If the Government do not give that commitment, it implies that they are no longer in favour of resource equalisation.

Baroness Hanham: My Lords, I thank both noble Lords for their contributions. I appreciate that the use of the central share is of concern and interest, particularly once we get through the next couple of years. Amendment 7 would ensure that the central share money would always be distributed on the basis of need. We have said that the central share money will always be returned to local government. The basis of the central share going to the Government is that it will then be used for local government. The question of need and special grants will be covered by the central share. That is basically what the central share will do. I cannot at the moment give the absolutely unqualified assurance that both noble Lords, Lord Shipley and Lord McKenzie, asked for on resource need equalisation. I am pretty sure that that is correct, but I will come back to them if there is any change to that.
	I also confirm that the amount of revenue support grant in the system will reflect future spending reviews, so the Government's view of the funding will be available to local government in advance. I hope that with that rather short explanation the noble Lord will withdraw his amendment.

Lord McKenzie of Luton: I am bound to say that I do not feel that we have made any progress on this issue as a result of that response. I am grateful for the support of the noble Lord, Lord Shipley, on the issue. It seems to me to be a core point about how this will work that the Government have some idea of what they are going to do with the central share. Yes, we understand that it will be returned on some basis to local government in England but, as I pointed out when I moved the amendment, that might just be diverting whatever resources go through the schools grant. At the moment there are some £30-odd billion, as I understand it, that could be switched for use in the central share.
	With great respect, I do not find it satisfactory that we are still left substantially in the dark even about the principles to be applied, beyond any use for revenue support grant. We know that system, we know what it does, but we know that it will be discretionary not mandatory in future. That is in the Bill. I find that profoundly unsatisfactory. If the Minister said that she could say more at Third Reading, that might help me with my next move. If not, I am inclined to get this in the Bill, but I should like to hear from her first.

Baroness Hanham: My Lords, I have given an explanation of what the central share is. I understand that the noble Lord wants absolute specifics of what the central share will encompass and what it will be used for. I do not have those details. I assure him that he will have them well before Third Reading so that we can come back to it if necessary.

Lord McKenzie of Luton: My Lords, on that basis, I am prepared to withdraw the amendment on the proviso that if what comes forward does not really address the point, I will revisit it at Third Reading. I stress that it is not the detail of every pound, it is the principles that will underpin its use that I seek. I beg leave to withdraw the amendment.
	Amendment 7 withdrawn.
	Amendments 8 and 9
	 Moved by Baroness Hanham
	8: Schedule 1, page 21, line 33, after "(b)" insert ", (ba)"
	9: Schedule 1, page 21, line 35, leave out "(2)(a)" insert "(2)(za) and (a)"
	Amendments 8 and 9 agreed.
	Amendment 10
	 Moved by Lord Jenkin of Roding
	10: Schedule 1, page 22, line 22, leave out "each year" and insert "each financial year until the end of the financial year beginning 1 April 2014,"

Lord Jenkin of Roding: My Lords, before I move this amendment I should declare my interest as a joint president of London Councils and, like a large number of other noble Lords in all parts of the House, as a vice-president of the Local Government Association. There were lengthy debates in Grand Committee about the question of 50% of the amount of business rates being retained by local authorities. I therefore really make no apology for coming back to this issue. There have been references already, in the debates on earlier amendments, to the Government having made it clear that there will be no reset until 2020 and that therefore the main structure of the system will remain as it is.
	First, I can deal very briefly with Amendment 10 because I want to direct most of my speech to the two other amendments in my name in this group, Amendments 13 and 14. When a similar amendment to Amendment 10 was tabled in Grand Committee, my noble friend explained that it was the Government's intention to retain, as I have just said, the first reset date as 2020. That means seven years without a change. It is worth reading what she said on that occasion:
	"That will give local authorities much greater long-term certainty about their financial obligations to central government and the funding that they can expect to receive from government than under the current three-year spending ... process".-[Official Report, 3/7/12; col. GC 327.]
	At first sight, that sounds like an attractive proposition, but the fact of the matter, as has already been indicated, is that there are considerable other uncertainties surrounding this.
	If I may say so, my noble friend might have somewhat exaggerated the degree of certainty that the system in the Bill, and her plans for it, will actually produce. What she said is really not accepted by a number of local authority associations. Perhaps I might just refer to one. London Councils suggests that while the system of top-ups and tariffs might remain constant within the business rates retention element of the system, although the adjustment for revaluation may alter this, uncertainty will continue to exist around the total level of funding that local authorities can expect to receive under this system. It points out that this really is not ideal. We have of course had references to the problem of setting budgets, not just for 2013-14 but thereafter.
	To some extent, this overlaps the proposition in Amendments 13 and 14. These amendments go to the heart of the policy that lies behind this part of the Bill. They highlight what appears to be a contradiction between the laudable ambitions of Ministers to transform the system in the interests of economic growth, on the one hand, and on the other of what seem to be the instincts of the government machine to retain a very firm grip on the levers of control. This is an instinct that I of course recognise but in this context deplore.
	The aim of this debate and the amendments that I am moving is to elicit from my noble friend a statement of the continuing willingness of Ministers in the department to do battle against the inertia of Whitehall's controlling instincts and to hold fast to the vision of promoting growth and development. These are arguments that we developed at some length during the debates on the Localism Act, with, I have to say, some quite tangible results-Ministers recognised that if you were giving local authorities a general power of competence, it was rather silly to have pages and pages of the Bill telling them exactly how to do it. I am not asking for the impossible here but simply for recognition that one must resist the tendency for Whitehall to control town halls.
	A fundamental principle behind the localisation of the business rates is that local residents of councils that actively promote development will see the benefit of extra growth in the form of retained tax receipts. To put it simply, it is an incentive, and that is what it is intended to be. It makes very real for councils the basic economic truth that the state prospers only if the nation does. All government, not just local government, can spend only what productive businesses earn. I recognise at once that many councils already care deeply about promoting their local economies. The evidence for that is clear as they put effort into economic development through activities as diverse as the way they operate the planning system, build up the local tourism offer-that has been referred to-tackle local unemployment, find training opportunities for young people and maintain the effectiveness and attractiveness of the local high street.
	The evidence also shows that communities that know that extra development brings extra funding for public services take a different attitude to what might otherwise appear to be difficult decisions-one thinks particularly of planning decisions. That is not just my own opinion or even some abstract economic theory; we have as evidence the DCLG's own excellent analysis, overseen by Professor Henry Overman of the London School of Economics. That analysis calculates for us the precise incentive effects from retaining business rates locally. It draws on empirical economic studies and the current academic literature. It shows that on a middle-case scenario, and of course there are margins for variability on either side, the Government's policy could generate an extra £10.1 billion of gross domestic product as the result of the incentive effect of localising just half the business rate revenue, affecting councils' planning decisions. Half is what the Bill provides, of course, and is what is intended to remain in place until 2020.
	However, the evidence shows something more than that. According to the Government's analysis of that best academic literature, this incentive effect works in direct proportion to the share of the business rate that is retained locally. For every extra percentage share of the rate revenue localised, the gain in GDP increases too. The more of the rate revenue you localise, the more extra-economic growth you get as a result. As I say, this is the finding of the Government's own analysis.
	I come therefore to the point of the amendments. If the Government believe their own economic analysis and if they really want to see economic growth-I cannot think of any of us who would not want to see that-the economic argument is completely compelling: we should localise as much of the business rate as we possibly can.
	However, that is not what my noble friends have chosen to do. Instead, the policy is to fix 50% as the central share of the rates which councils must continue to surrender to the Exchequer. One can only speculate on the reasoning behind the figure of 50%, which seems a suspiciously round number, but the effect is clear. The mechanisms required to impose the 50% central share will mean that the DCLG will need to continue to involve itself deeply and in detail in councils' financial affairs for some years to come. Central government will be kept busy. More than that, to go back to Professor Overman's research, if the local share is set at 50%, so is the growth incentive of the new scheme. Are we really happy to try to escape the current choppy economic waters by going at only half speed?
	Amendments 13 and 14 challenge the way in which the central share arrangement in effect contradicts the commitment to growth that lies behind the scheme in this Bill. They would require the size of the central share to reduce progressively over time-I suggest a minimum of 5% a year-and the local share to increase accordingly. They take the Government's policy intention at face value and in the light of their own published economic evidence, and impose a framework that would allow them, over time, to increase the growth incentive built into the new system and as a consequence to increase the economic output of the nation. That seems to me to be a thoroughly desirable objective.
	My noble friend has said on other occasions that 50% would not stay for all time; it is the Government's hope, as they put it, that as the economic situation improves they will be able to increase it. But if increasing it earlier actually helps to put the Government's economic policy firmly on to a growth trajectory, we really ought to consider that. When local authorities are looking for an opportunity to get a bigger than 50% share, that share should grow over a period of years. They are asking for something that is not only in their own interests but in the interests of the nation at large. I beg to move.

Baroness Thornton: My Lords, I shall speak to Amendment 37A, tabled in my name. I need to declare some interests. I am the honorary secretary of the All-Party Group on Social Enterprise, which I founded in 2001. I am a patron of Social Enterprise UK, and the ambassador for Spota, the trade body for a sports and leisure trust and an associate of Social Business International. The last two are modestly remunerated and are listed in the register of interests. I am a founding chair of Social Enterprise UK, a former trustee of Jamie Oliver's Fifteen Foundation, Social Enterprise London and Training for Life, and I am a lifelong member of the Co-operative movement. Noble Lords will understand that with that background I know quite a lot about charities and social enterprises, but I have to say that local government finance does not rank highly among my areas of expertise. That is why I am so pleased that my noble friend Lord Smith and the noble Lord, Lord Shipley, have agreed to support this modest amendment because they certainly understand much more about the detail of business rate relief.
	What we are considering today is not a partisan issue. It is in no one's interests for the development of trusts to provide sports facilities, theatres, museums and libraries at the local level to be discouraged in any way, so it is disappointing that the issue has not been resolved since the Committee stage. When we last discussed this in Grand Committee on 5 July, it was clear that the Minister anticipated that it would be. She said:
	"I understand the question of sports and leisure clubs is still under discussion, and perhaps we may be able to deal with that at a later stage".-[Official Report, 5/712; col. GC 407.]
	I became alive to the fact that this had not been resolved fairly recently, hence the flood of e-mails to noble Lords I thought might be interested-to the Minister, her Bill team and anyone else I could think of to express my concern. Indeed, I was forwarding to many noble Lords the concerns expressed by the Museums Association and the sports trusts. This Government have a policy of supporting and promoting social enterprises, co-operatives, mutuals and charities, which I applaud. The Minister may recall that I supported the parts of the Localism Bill aimed at supporting social businesses providing local services and running local facilities. Indeed, Big Society Capital and the work of the Cabinet Office is directed at the growth of this sector, which is why the proposed new business rate regime and its potential detrimental effect on the growth of this sector is a surprise and, I am sure, an unintended consequence of this Bill. I do not think this is what the Government intended, and I am sure it is not what the Minister intended.
	There is a policy contradiction at the heart of what we are discussing today. Social Enterprise UK, which has support from across the House, has asked the Cabinet Office to comment on this policy issue, and I wonder whether the Minister has discussed this matter with her colleagues in the Cabinet Office. I sent an e-mail to the Minister and her officials on 26 September with a copy of the draft amendment before us today and an offer to discuss the issue concerned. I hope that the consideration that I am sure the Bill team and the Minister have given my missives may help us today.
	For example, this is what the Somerset Heritage Service has to say about the proposal in the Bill:
	"The proposed new business rates regime could possibly have an impact on the Somerset Heritage Service. We are part way through a service review which is exploring the option for the whole of the Heritage Service, including our Museums Service, to move into a trust model. The mandatory relief of 80% of the business rate liability on our premises is an important consideration in this, and is currently being factored into financial projections. Any proposed change could have a detrimental effect on any financial package agreed with the Local Authority and therefore the financial viability of the trust if it is decided to go ahead in this way".
	The Association of Independent Museums very kindly sent me a copy of a letter it received from Bob Neill MP, who is the Minister dealing with this in another place, in which he writes:
	"We are ... introducing these changes to how local authorities are funded in order to provide a strong local growth incentive".
	I have to say that this puzzled me and it puzzled the Museums Association, too, because we can see no way that this can promote a growth incentive. The Government's proposals for business rates retention, being introduced in this Bill, make a massive reversal to the incentives for local authorities to transfer facilities and their associated public services to charitable organisations in their communities. In the case of leisure and cultural centres, such transfers are often made under a lease, although transfers of full ownership of assets can also be made as a publicly beneficial policy. What is now proposed will mean that local authorities will need to meet 50% of the cost of the mandatory business rates concessions provided for trusts and other charitable organisations. Previously, all this cost-80% of the total business rate cost-was met by central government.
	Local authorities retaining facilities and services in-house will pay only 50% of the business rate cost. Previously they paid 100%, all of which went to the national pool. Local authorities which outsource the operation of facilities and services to private companies will keep 50% of the business rate that those companies will pay. Previously the whole of those payments were passed straight through to the national pool. Consequently, many proposals to create new local trusts or to renew or extend contracts with existing charities could be stopped in their tracks in favour of alternative options, and the local community-based trusts sector could see a progressive decline. Many more local facilities and services would be transferred, possibly to large national companies, which I am sure is not the intention of this change.
	We know there are many reasons why a charitable trust offers the best way to run local facilities and services, such as leisure and cultural centres, museums and libraries. However, at a time when local authorities are prioritising the options that cost them least, many of these advantages could be set aside. As well as the long-term position, sponsoring the establishment of a new local charity can have significant short-term costs which local authorities have previously been able to justify because of the longer-term financial gains which will now disappear.
	Really, the Government should rebalance this dramatic change to the business rate incentives, which otherwise would be very damaging to the community charitable sector which they say that they support with big society policies. I urge them to provide the full costs of mandatory concessions to charities, met by the central share of the business rate revenues. Such a step would leave the improved incentives to keep in-house operations or outsource to the private sector to avoid the double whammy that would hit trusts so hard.
	The amendment would keep the status quo. If, however, the Minister has something more fitting up her sleeve, I am sure that everybody would be delighted. Certainly, I still hold out some hope that the Minister might be prepared to continue to discuss this very important matter.

Lord Shipley: My Lords, I declare my interest as a vice-president of the Local Government Association. I agree with my noble friend Lord Jenkin about the share of the business rates. If the central share continues at 50%, there is a disincentive to local growth by local authorities. The series of amendments tabled by my noble friend, in favour of an escalator, would result in local growth being driven more strongly. His amendment should therefore be supported.
	I will concentrate on Amendment 37A. It is an extremely important amendment, the implications of which were discussed in Committee; I had thought at that time that they would have been resolved by now. I have been a strong supporter of the concept of the big society. There is enormous value in promoting volunteerism, trusts and social enterprise. I have been encouraged by the positive approach of the Government to this. However, we have to assist and encourage volunteers and not put barriers in their way, so I am genuinely puzzled by what is still contained in this Bill when these problems were indentified in Committee. Sports and leisure trusts, as we have heard, the Association of Independent Museums and Social Enterprise UK have all pointed out that the incentives to keep such public services in-house, in local authorities, or else to privatise them, will become more pronounced as a consequence of the Bill. Discussions over the summer seem not to have solved the problem. The amendment does.
	Under the Bill, there will be serious consequences for expanding trusts, for the creation of new charitable trusts and for the outsourcing of running council buildings which might be better run locally by a charitable trust structure. This is because the incentives to create trusts and mutuals will be reduced and local authorities will have less incentive to grant discretionary business rate relief.
	On charities and charitable trusts, councils will be compensated for only 50% of the cost of a new or additional charitable concession on business rates. Currently, all of the mandatory cost-that is, 80% of the total business rate and 25% of the discretionary cost-has been met by central government. In future, that central contribution will drop to 50% and local authorities will have to meet the other 50%. Yet local authorities retaining services and facilities in-house will pay only 50% of the business rate cost because they will split the business rate income 50/50 with the Government. Previously, local authorities have paid 100%, all of which has gone to the national pool.
	The incentive for councils to create their own trusts will be reduced. Such new trusts will have to meet additional business rate costs that keeping provision in house would not. Similarly, local authorities that outsource the operation of facilities and services to a private contractor will keep 50% of the business rate that these companies pay; previously, of course, 100% of these payments went to the national pool. There is therefore in this Bill a financial incentive to privatisation.
	Trusts can involve significant transfer of buildings and facilities, and unfunded additional costs need to be avoided if more charitable trusts are to be encouraged. We really must give them the means to do the job. The solution is for the costs of mandatory and discretionary concessions to be met by the central share of the business rate revenues where there is an additional net cost to a local authority. Such a decision would remove barriers to trusts being formed.
	I hope that the Minister will take on board these concerns and prevent significant additional costs arising for local authorities if they wish to transfer facilities and services to trusts. The proposal is of course revenue-neutral overall and I hope that we can secure all-party agreement to a different way of proceeding prior to Third Reading.

Baroness Eaton: My Lords, first, I must declare an interest as an elected member of Bradford Metropolitan District Council. Along with many Members of your Lordships' House, I am also a vice-president of the Local Government Association. The amendment in the name of my noble friend Lord Jenkin is an extremely valuable contribution to the consideration of this Bill and I am very happy to support it. I should make it clear that I support the localisation of the business rate and congratulate Ministers on having pushed this policy through against much resistance. I campaigned for this change as chairman of the Local Government Association and I am pleased to see it becoming a reality.
	However, today we are addressing a typical problem faced by a Government who are trying to get ideas from the drawing board of policy into the workshop of implementation when there are so many eager Civil Service helping hands to pass through on the journey. The amendment forces us to face up to a basic difficulty with the Government's decision to set the central share of business rates at 50%. It is a problem we can even put a figure on thanks to the Government's own evidence. As we have heard, we have a £10 billion problem.
	My noble friend Lord Jenkin explained fully, competently and clearly the Government's analysis of the scheme and the economic value of localising the business rate. I am sure that the Minister will explain what in this case trumps growth. But we have a few indications from the Government already about their reasons for setting the central share at 50%. For example, the Treasury is explicit that it will use the central share mechanism in order to continue to impose control over how much councils can spend, even though that spending is self-evidently funding itself without any impact on the national taxpayer or the deficit. This control has nothing to do with the Government's deficit reduction plans, which are entirely necessary and correct. The expenditure and the local revenue balance out without any impact on borrowing. As I see it, it is control of the amount of spending for control's sake alone.
	With such a large central share the opportunities will be legion over coming years for the Treasury to try to spare responsibility for programmes which are currently funded by the Exchequer into the ambit of the central share, to which the noble Lord, Lord McKenzie, has already referred. That would go beyond mere control into a zone where local ratepayers are being asked to shoulder burdens that previously would have been funded by national taxes. Perhaps I am being cynical but I feel that this would give me great concern.
	The local share escalator proposed by my noble friend Lord Jenkin is a very elegant solution to resolving this problem over time. It would recall the Government to their localist and growth-focused principles, and bring the Bill closer to its advertised purpose. I am very happy to support it.

Lord Smith of Leigh: My Lords, I have a couple of amendments in my name and one which I share. Before I turn to them, I should like to comment on the significant amendment moved by the noble Lord, Lord Jenkin of Roding. I agree with much but perhaps not quite all of what he said. He is right about what it reveals about the Government's attitude to localism, which is schizophrenic at best. In some ways they push very much on to local authorities and at other times they want to put controls in. I think that this is one on which the Treasury is not willing to trust and give up control entirely to the local authority. He is absolutely right that there should be, as I am sure there is, a consensus in this House about the need to achieve economic growth. We come from every different angle. I look at the level of youth unemployment in my area and of unemployment generally and, clearly, I want to achieve growth. My own local authority is working together with colleague authorities in Greater Manchester-perhaps I should have said that I am chair of the Association of Greater Manchester Authorities, too. We put a lot of effort and resources into trying to achieve growth. At a time when local funds are being squeezed, this is discretionary spending; it is not something that we have to do as local authorities, but we do it because we believe that it is important.
	In principle, I agree with the amendment, but the noble Lord talked about the evidence, and we need to remind ourselves that we do not have evidence-we have analysis and someone's views about what might have happened in the past. I suspect that most of the work was done in the past, when the economy was not in a double-dip recession. What worries me is that if we are in a recession-and the IMF confirmed some of the problems yesterday; we await the outcome of the Autumn Statement, but we expect that to confirm the situation, too-to achieve economic growth will not be quite as easy. To give local authorities control of business rates will not automatically achieve the desirable outcome of growth. We have to bear that in mind. Yesterday we saw that the impact of the cuts in the public sector on the economy was much worse than predicted, because the analysis had been done in different time periods.
	The two amendments in my name are very minor, and I am sure that the Minister will regard them as such. Amendment 11 tries to put something into the Bill, but perhaps we will get an assurance on this from the Minister. One of the better changes to local government funding in recent years has been that we have gone away from the one-year settlement on to at least a three-year one. We know that it is provisional, but it is a great opportunity for local authorities to plan for the future. That was really important in times when we were growing but absolutely essential in periods when funding is being reduced. I hope that the Minister can say that there is no lack of commitment to that longer term view of local finance.
	Amendment 12 simply reflects on the fact that the Government on a number of occasions have put into the Bill the principle of consultation with local authorities. In this particular instance, they have not, and I wondered whether there was any particular reason for that.
	When I was approached by my noble friend Lady Thornton, I was happy to support the amendment. She had some problems getting in touch with me, but eventually we made contact. For someone who claims not to understand the issue, she put it very succinctly, and I am pleased to support her. I do so for a number of reasons. First, my own authority of Wigan was one of the first to establish a leisure and culture trust. One way in which we looked at whether it was a good idea was to study the impact of the business rate; that was a fundamental part of why we did it, because we could use the benefit of the business rate relief to invest in additional facilities. It has proved to be a great success.
	Secondly, in my area, as in many others, we did not give rate relief to local sport clubs that had a bar for a long period of time. In a sense that was sensible up to a point, but clearly there are bars and bars. Many times the bar is simply a facility for the players when they have had a difficult game. We have developed a strategy, which is widely replicated across the local authority, whereby we would give rate relief to clubs, even if they had a bar, provided that they could demonstrate to us that they were using it to support a sporting endeavour rather than simply keeping the price of beer down. That has proved to be the case, and proved to be very successful.
	The third reason why I would like to support the amendment is because, under the severe financial constraints that we have at the moment, we clearly have to review all our leisure and culture provision. We do not want to close facilities but it is becoming very difficult to support some of them. In fact, we have already transferred one swimming pool to community control. It was helped because it had a very active swimming club, but it has worked really well. In the few months since it has been operational, since 1 April, the scheme has worked well; they have managed to reduce costs, because they do not have the overheads that local authorities have. That is an example of the big society; here we are giving from the public sector into the community sector. If the benefits of the business rate relief were not available to newly formed clubs, the economics of doing that would be different.
	I hope that the Minister can give us assurances. In this Olympic year, of all years, we want to be seen to be doing our best to support sport and fulfil the commitment that we made as a nation, which was part of the reason why we were successful. So I hope that she can consider the amendment.

Lord Tope: My Lords, I intended that my name should also be added to the amendments tabled by the noble Lord, Lord Jenkin. Due to some mishap, that did not happen, but the noble Lord knows that and that I support the amendments that he has moved so ably. He and my noble friend Lady Eaton and others have said much that needs to be said and, perhaps unusually in this Chamber, I do not intend to repeat it all.
	I would like to add a little context to remind noble Lords of the situation here. Ever since the business rate was nationalised some 20 years ago, successive opposition parties pledged themselves to denationalise or localise it, and it has not happened. At last the coalition Government announced that they were going to localise business rates, and I think it is fair to say that that met with a general if cautious welcome across the whole of local government. It was something that all parties in local government had long wanted and argued for, and at last it was going to happen. As it became clearer and clearer exactly what was going to happen and what the intentions were, the wisdom of a cautious welcome became clearer and clearer. It was not quite as good as it was thought to be. And then the announcement came that, at least in the first year, the set-aside would be as much as 50%. For most that came as a shock rather than just an unwelcome surprise. That is the context in which we approach the amendments today.
	Local government on all sides is understandably suspicious and doubtful not of the Government's good intentions but of their fulfilment, and that the 50% rate may remain for ever. Therefore, the amendments that the noble Lord, Lord Jenkin, has proposed are a very good way, although it might not be perfect, to introduce some certainty into what I am sure is the Government's intention: that it should not remain at 50% but should escalate so that one day we reach that dream world where 100% is retained by the local authority, when it will be a real incentive. I hope that the Government will consider very carefully the amendments and most particularly the intentions behind them.
	I want to say a few words from personal experience in support of the amendment proposed by the noble Baroness, Lady Thornton. I was very interested to listen to the noble Lord, Lord Smith, talk about the Wigan Leisure and Culture Trust. In common with many local authorities, my own has considered, for perhaps a little too long, a similar sort of culture trust for the services for which I had executive responsibility right up to May. It is therefore no surprise that I am still involved with this area. We are a little way yet from a decision on it-there are inevitably many pros and cons with these things, and things to be considered-but one key aspect is the question of the NNDR. I could almost go so far as to say that that is a deal breaker or a deal maker. It makes a critical difference to the finances of this operation. Therefore, I support this amendment very strongly and what has been said by the noble Baroness, my noble friend Lord Shipley and the noble Lord, Lord Smith of Leigh. Indeed, I want to know more about the Wigan trust.
	I hope that if what we have been discussing is an unintended consequence-I want to believe that it is-active consideration is being given to what to do about it. As I said, I have a personal interest in the sense that this issue is very live with my own local authority. I know that it is equally live with a lot of other local authorities. We need to know, particularly at this budget time, what the position will be by next April.

Lord True: My Lords, I wish to follow that point and add my support to the principle of the amendment put forward by the noble Baroness, which I am afraid I saw only when I came down to collect the relevant papers before coming to the Chamber. From what she has said I understand that there is continuing dialogue on the issue. I may be reading wrongly paragraph (b) of the noble Baroness's amendment, which states, "arising between resets", but it appears to generalise beyond the specific issue raised of mandatory and discretionary rate relief. I am not sure whether that is the case but it is something that we would have to discuss. However, I endorse everything that has been said by the noble Lords, Lord Smith and Lord Tope, and others. I discussed this issue with two other London council leaders only yesterday.
	One of the principles of wishing to promote social enterprise and trust approaches is to support the principle of local involvement, localism and local understanding. If a perverse disincentive is being created quite by accident to offload institutions to far more remote bodies or else to keep the matter in-house, that would be a great pity. In the case of mandatory rate relief, I do not know how it will evolve, but if we are to have an increasing number of charitably run academies and other institutions, these are issues over which local authorities have no control whatever under existing legislation.
	I hope that the noble Baroness will not press the amendment at this stage, although I do not think that is her intention. I hope that my noble friend will listen to the points that have been raised, and to which I add my voice, as this Government have a proud record in supporting localism, social enterprise and charitable activity. I do not think that anyone, certainly not in my noble friend's department and I would hope not in others, would wish unintentionally to cause any disadvantage. Therefore, from these Benches I add my voice in support of these amendments in principle.

Lord McKenzie of Luton: My Lords, my noble friend and I have tabled Amendment 15 in this group, to which I shall speak briefly. I shall then comment on the other amendments in the group. Amendment 15 is by way of a short probing amendment to follow up a point which I think is still outstanding from Committee. It seeks to determine how the rates generated from the central rating list will feature in the business rate retention scheme. Essentially, it is asking how local government gets the benefit of this measure, if at all. Does it feed into the central share, which is then paid back through certain processes or does local government get half of it up front through the sharing arrangement? Of course, the central list is the list on which utilities find themselves because they cannot very easily be distributed among a range of individual authorities. It would be good to know how local government gets the benefit of the business rate on central list items.
	I wholeheartedly support Amendment 37A in the name of my noble friend Lady Thornton, as do all other noble Lords who have spoken on it. An interesting facet of the background to the amendment is that we are reminded, when considering this system, that local authorities can be both payers and collectors of the business rate. That is part of the issue that the measure is highlighting. The solution of seeing mandatory relief on an ongoing basis as a new burden to be met from the central share seems to me absolutely right. I think the intention is that that should be the position between resets and that resets would be the point where you would have a squaring up and look at aggregate business rates and proportionate shares. Therefore, that would be a point at which you could recalibrate tariffs and top-ups and that would deal with the matter. I think that that was the intention behind casting the amendment in that way.
	The noble Lord, Lord Jenkin, has, as ever, brought forward some interesting amendments. We cannot support all of his amendments but we can certainly support some. He took us back to the economic analysis which underpins much of the Bill and the benefits of localisation. Although the relevant report was quite heavily caveated, that does not deny the thrust of the points which the noble Lord made. Nevertheless, as my noble friend Lord Smith said, much of the analysis might have referred to a previous era. I think that the starting point of the analysis was a look at what happened in reverse, when the business rate was nationalised and the system went from being a local one to a national one. The noble Lord, Lord Tope, was ecstatic about localism having been achieved. I had understood localism to be not only about getting a share of what you collect but also about having some influence on the rate of tax. I thought that that was the noble Lord's ambition at one stage. I am not sure whether it is his ambition now.
	We have an issue with Amendment 10 in the name of the noble Lord, Lord Jenkin, which basically says that after a period of time there will be no central share. Apart from the fact that I do not think any Government will totally relinquish attempts to influence local government, the amendment raises the issue of how you rebalance the potential inequities that might arise from relying just on the business rate shares. That issue also applies to Amendments 11 and 12, particularly Amendment 12.
	I entirely support Amendment 13. In fact, it coincides with the proposition that we make in Amendment 16, which basically means that you should lock in the local share so that it can never be less than 50%. I think the noble Lord's amendment does more than that, but it achieves that objective as well.
	As regards the ratchet, if the proposition is that there should be opportunities for the local share to increase, we can support that. I know that the noble Lord is not necessarily particularly wedded to the mechanistic approach but is addressing the concept. However, when you change the local and central shares, logic demands that you have to recalibrate and reset the system. I do not know what the Minister's notes say about that. However, I think that once you start doing that, you have to revisit tariffs and top-ups. That follows logically from the way the system is constructed. That is tied up with the other components of the system and the debate we have just had about what happens to any component of the central share and how that is deployed back to local government. Will it be done on a basis that has regard to resources? On one basis, we might be content to see a higher central share than other noble Lords would prefer; not as high as 50%, but not necessarily right at the extreme edge of what might be achieved.
	I say to my noble friend Lord Smith of Leigh that there is absolutely nothing wrong with trying to keep down the price of beer, although I accept that doing it via the rates might be pushing one's luck a bit. Again, we have heard the voice of experience, particularly in the context of the amendment of my noble friend Lady Thornton. The concept of trying to give local authorities a three-year indication about the funding they can have must make sense. The current system is an improvement on what existed in the past. The requirement that there be consultation with local government on the setting of the shares must be absolutely right.
	My noble friend's Amendment 17 requires that the local government finance report specify the central and local shares and that it be laid before the House of Commons,
	"including the full details of the consultation undertaken",
	in respect of that determination. That seems a modest but entirely reasonable amendment and it has our full support. I hope that the Minister will feel able to support it.

Baroness Hanham: My Lords, this debate has taken us through several areas. Sometimes the groupings are more interesting than the actual outcomes. We have a raft of issues that have come into the debate.
	It might be worth, at the outset, repeating something that I said in Committee. All of us here who have had anything to do with local government have for years said, "Let us keep the business rate and bring it all back". That principle-the fact that local government will retain the business rate-has been accepted in the Bill. However, the noble Lord, Lord McKenzie, made the good point that you would never have been able to keep it all. Some form of an equalisation scheme was always going to be needed, because some authorities receive far more business rate than others. The concept of keeping 100% in every local authority was clearly never going to work.
	What has been accepted-and we have accepted it in our discussions today-is the principle, which was never there before, that local government should retain the business rate. Therefore, that leaves us with a movable feast and brings us back to the issue of the 50% retention. We have made it clear, and I made it clear in Committee, that the 50% is there at the moment entirely because of the economic situation. We have to make sure that local government is part and parcel of the resolution of the difficulties that we face. We hope that the deficit will be short-term. It does not feel much like that at the moment, but once the economic situation begins to improve, we hope that there will be a reduction in the percentages. Obviously, I cannot say today that the figure will reduce from 50% by 5% year on year. I am not completely sure that my noble friend Lord Jenkin thinks that that would happen. All I can say is that if we get improvement in the economic situation, we will be in a much stronger position to ensure that that 50% share gradually reduces.
	I am not sure whether the noble Lord, Lord McKenzie, is going to debate the next amendment, regarding the heads or tails side of the coin. The answer is yes, so we will come back to that.
	Amendments 12 and 17 would require specific consultation with local government on the central and local share. That is an important point. I assure the noble Lord, Lord Smith, that the draft local government finance report will set out the central and local shares, and that in itself has to be consulted upon. Therefore, there will be consultation-actually, a specific consultation within the finance report. I am not sure that anything is to be gained by adding anything to what is there at the moment.
	The process of setting central and local shares has to reflect the Government's ability to protect the interests of the taxpayer. I have said that at length and I reiterate it. It is essential that a judgment is made about the macro economy before any changes can take place. More generally, we have made clear that we would not anticipate central and local shares changing from year to year. At the moment it is going to be a ratio of 50:50, until something happens to change that, and the reset will be in seven years. We would expect the central share to remain unchanged between 2013-14 and 2020. That takes in the reset and the setting of the tariffs and top-ups. We would also expect the tariffs and top-ups to remain within the seven years. As we have discussed, if there are particular problems, it is clear that the Government will need to take them on board.
	Also regarding the 50:50, and as laid out at the moment, the Government and local authorities, within the seven years and the split shares, will have a much better idea of how much there will be by way of support-what local authorities' financial obligations are to central government and what they can receive from it. Local government has wanted that for a long time-the ability to know, year on year for a reasonable length of time, what their income and expenditure, and likely contribution to the Government, are going to be.
	Again, I am not sure that Amendment 11, tabled by the noble Lord, Lord Smith of Leigh, will be necessary. Local authorities are going to know reasonably confidently what their central share will be for the next seven years until 2020. I think that he accepts that because I see him nodding.
	In talking to Amendment 15, the noble Lord, Lord McKenzie, raised the issue of the central list-the element of business rates that is collected directly by central government from local government and network properties. Income from the central list will be paid into the main rating account, as provided for in paragraph 2(1)(a) of new Schedule 7B to the 1988 Act, as inserted by Schedule 1. I am sure that the noble Lord wanted to know that and that Hansard will be delighted. That will happen. Along with the other money paid into that account it will be used solely for the purposes of local government. As I said when responding to previous amendments, the central share comes back to local government. What we have not bottomed out-and I promise to do so-is exactly what that central share contains. That is what we will do before the next session. The central share will also be used to fund the revenue support grant and/or specific grants in the first couple of years.
	The existence of £1.2 billion of central list money collected every year was also taken into account in the macroeconomic judgments that went into the Government's announcement of the 50:50 share. It is not and should not be taken into account in the arithmetical calculation of the estimated business rates aggregate-I know that the noble Lord wants to know this also-that will determine the total funding in the rates retention scheme, as sought by Amendment 15. If this were to happen, it would simply increase the total aggregate rates income and, paradoxically, would thereby reduce the revenue support grant available to local government. We have heads and tails again.
	I hope that I have given a reasonable explanation of why we will not be able to accept these amendments. I am not sure whether my noble friend Lord Jenkin will be persuaded to withdraw Amendment 10, but I ask noble Lords not to press the other amendments on these subjects. However, I hope that he will at least understand my explanation.
	In 2012 we held technical consultations to explain to local authorities that they will be fully compensated for both the mandatory and the discretionary relief that they currently give at the point that the scheme is set up. I refer to the amendment of the noble Baroness, Lady Thornton. In addition, local authorities will be compensated for any new mandatory reliefs through the "new burdens" principle. The point has been made by the noble Lord, Lord Smith of Leigh, and others that the setting up of trusts, at the moment and in the future, would form a new burden. However, in line with the general principles that risks and rewards under the scheme would be shared between central and local government, the costs of any changes in the amount of mandatory discretionary relief given by local authorities will be shared. That point was made by the noble Baroness-that the 80% was fully funded by government in the past but now it will be shared 50:50.
	We are undoubtedly aware of the concerns that have been raised by authorities about the funding of reliefs, particularly the mandatory relief-we have had that response in the consultations. We will consider the position further before taking a final decision later this year. If the noble Baroness is asking for discussions, I shall be happy to talk about this further between now and the next session if that would be helpful. If we were going to change the arrangements, we think that we could do so through secondary legislation, so let us see where we can get to with that. On the basis that we will have further discussions, perhaps I do not need to go any further into the benefits or otherwise of the amendments, and I look forward to talking to the noble Baroness in the next week or so.
	With those comments, I hope that my noble friend Lord Jenkin will feel able to withdraw his amendment.

Lord Jenkin of Roding: My Lords, I am extremely grateful to all those who took part in this debate and, in particular, to a number of my noble friends, as well as the noble Lord, Lord Smith of Leigh, who were able to support my amendment concerning the escalator. However, there is an interesting parallel between the two Front Benches: they accept the matter in principle but do not want to be pinned down to a timetable. I understand that. I understand that the timetable that we built into Amendment 14 would, if it became part of the Bill, require further legislation if it were going to be departed from, so I do not think that we can possibly advance on that.
	However, the main purpose of moving the amendment has been accepted. My noble friend has reiterated her support for the principle of the progressive increase in the local share of the business rate to be retained by local authorities, but, as she said, she would prefer that to be a movable feast rather than a fixed escalator. I understand that.
	With regard to the amendment very ably spoken to by the noble Baroness, Lady Thornton-she was kind enough to ply me with a number of quite long papers in support of it-if this matter is currently being discussed between the noble Baroness and her supporters on the one hand and the Government on the other, it seems to me that that is the right way to proceed. I support the Local Government Association when it raises the question of affecting competition between in-house and out-of-house services. The LGA says-and I agree-that this must be on the basis of cost and not on the basis of some sort of tax break. I am not sure how far the noble Baroness was arguing that case but if one is going to do it in-house, rather than contract it out or use the services of a private contractor, it has to be on the basis of fair competition. I understand that.
	Returning to the question of a steady increase in the local share, I think, if I may say so, that my amendment has achieved its purpose. There has been a very clear statement from the Government that they are in favour of this. We shall hold them to that over the years ahead because there is no doubt that local authorities would love to see that. They do not want to be pinned to feeling that the local share has to be 50% and no more over a period. Having said that, I beg leave to withdraw the amendment.
	Amendment 10 withdrawn.
	Amendments 11 to 15 not moved.
	Amendment 16
	 Moved by Lord McKenzie of Luton
	16: Schedule 1, page 22, line 31, at end insert-
	"The local share must never be less than 50% of the business rates aggregate."

Lord McKenzie of Luton: My Lords, I think that I can be brief because this follows on from the debate that we have just had. Amendment 16 seeks to enshrine in primary legislation that the local share must never be less than 50% of the business rates aggregate. Therefore, it is entirely consistent with Amendment 13, to which the noble Lord, Lord Jenkin, spoke a moment ago.
	In Grand Committee on 3 July, the noble Baroness, Lady Hanham, declared in response to an extensive debate about central and local shares that,
	"it would be imprudent to presume that there might never be a time when we might need to increase the central share".-[Official Report, 3/7/12; col. GC 327.]
	The import of that was, I think, to increase it beyond 50%. We have just had a good debate about how the business rates should be shared and about the strong desire, which we support, for the local share to be higher than 50%. Perhaps I may say to the noble Lord, Lord Jenkin, that my reticence about the formulation was not necessarily due to the mechanistic approach; it was a question of whether you can just change the central and local shares without having to address all the other ramifications and components of the system. That arises in respect of another amendment in the name of the noble Lord. I would not assert that that is the case but there is an issue there that needs to be resolved.
	Of course, the difficulty in setting an increasing share, by a ratchet mechanism or otherwise, is that the shares cannot be seen in isolation. They have to be considered together with all the other components of the business rate retention scheme-the tariffs and top-ups, the levy and safety net. There is also the important question of how the central share is to be deployed. The system has to seek to promote an incentive for growth as well as ensure that local authorities have adequate resources to carry out their functions. However, it clearly also, from the government perspective, provides a mechanism to control local government expenditure, and we have seen the latest devices for taking yet further resources from local government.
	The Government are controlling expenditure next year at a level above the local share by using all the projected central share-and more-in revenue support grant. However, all the indications for the future are that the revenue support grant will reduce or disappear, so the Government cannot use that mechanism to control expenditure. Their reach in this respect cannot go beyond the central share. Therefore, the prospect of increasing the central share and reducing the local share implies particularly draconian expenditure controls on local government, perhaps even if there were dramatic growth in the business rates over the period.
	Therefore, the amendment does not mandate increasing local shares, although there is a strong argument for that, which we would support; it simply prevents the local share reducing beyond what the Government see as a fair starting point, and we believe that that ought to be locked into the legislation. I beg to move.

Lord True: My Lords, I do not know whether my noble friend intends to support this but I think that if she did it would be very odd. We have just heard from her a clear statement of the direction of travel in which the Government wish to go. She sees 50% as the minimum and we are going further. Given the state of the economy that we have inherited and still have-and there has been agreement across the House on many things during the course of the Bill-limiting, in effect, the discretion of any Government in the future in this way in respect of local government finance would probably not be, if I may borrow the word, a prudent step. Therefore, if the party opposite presses this amendment, I certainly hope that my noble friends will not be gulled into that Division Lobby.

Baroness Hollis of Heigham: In that case, what does localism mean if its revenues are available for raiding by central government when it chooses?

Lord True: My Lords, I have made a general statement of principle about public finance. I do not think that anyone who has heard my contributions to debates on this or other Bills relating to localism would doubt that I am very strongly committed to it. I would like the direction of travel to be as my noble friend has indicated. I am simply saying that ring-fencing local authority provision for ever in this manner does not seem an appropriate way to tie the hands of any future Chancellor from whatever party.

Lord Tope: My Lords, that intervention reminds me that almost exactly a year ago we had quite a long debate in your Lordships' House about what localism is. My noble friend Lord Greaves and I tried to set down, at some length, what we think localism means and it rapidly became clear that localism means what you want it to mean. In the ensuing 12 months, it has become increasingly clear that localism means what you want it to mean. Increasing pronouncements from central government-from my Government-demonstrate that point.
	I am sure that there is no one involved with this Bill and no one in local government who does not agree with the view expressed in this amendment. In that, I include the Minister, who will speak for herself. I am sure she cannot say that but I am equally sure that she agrees with the views expressed. I even dare to go so far as to say that I suspect that the Secretary of State would agree with the view expressed. However, we all have to recognise the reality that no Minister in any Government will accept this amendment. The Treasury would simply never let them. That is a hard reality of life and one that I personally regret very much. Before today, the Minister has gone a considerable way, and I hope she will in a few minutes' time, when she replies, make it very clear to us that the genuine intention of Government is that it should not and will not go below 50%. I was not at the Local Government Association conference-I am one of the few people here who is not a vice-president-but I read that the Secretary of State, Mr Pickles, was urging delegates there to continue campaigning for a higher share than 50%. Perhaps that was just a populist appeal at the time but I like to think that that was the sentiment.
	I think we all share the view expressed in the amendment. If we are honest, I think most of us realistically understand that no government Minister, of whatever party or coalition, would be able to accept that amendment. I am grateful to the noble Lord, Lord McKenzie, for moving the amendment and allowing us to press the point even further. I think the point is well and truly made and accepted. When the time comes, I hope that he will feel able to withdraw the amendment.

Baroness Hanham: My Lords, I thank my noble friends behind me for their contributions. In the middle of the previous amendment, I asked the noble Lord whether he was going to move this one but I am very happy, now that he has done so, to reiterate what I said before, which is that the Government's intention is to increase the 50% share of local authorities as soon as there is economic acceptance that we can do so.
	As other noble Lords have said, I am not sure that the noble Lord, Lord McKenzie, who was in government and who knows all about the difficulties, would believe at this stage of the Bill that we would be able to restrict the future ability of a Government if the situation ever arose-I hope that it never will and that things will get better rather than worse. I do not think that we could tie the hands of future Governments or of this Government with any statement that the share would never go up. I hope that the noble Lord will accept that. I reiterate that, as and when we get to a situation in which we can see the economy going in the right direction, further consideration might be given to that. I hope that the noble Lord will be able to withdraw his amendment.

Lord McKenzie of Luton: My Lords, I thank the noble Baroness for her reply and other noble Lords who have spoken. It seems that we are all on the same page, going in the same direction and all in agreement that the local share must not be less than 50%, but somehow we do not want to commit to that in legislation. Primary legislation does lock Governments in but not for ever. The noble Lord, Lord Tope, said that the Treasury would not allow it. If we passed it into legislation, the Treasury would have to accept it, would it not? The point of putting things into primary legislation is to stop the Treasury's controlling instincts.

Lord Tope: Does the noble Lord believe that the House of Commons, as presently constituted, would accept this amendment and thus tie the hands of the Treasury?

Lord McKenzie of Luton: Yes, my Lords. As my noble friend has advised me, that depends in large measure on how the Liberal Democrats use their votes in the other place. They are meant to be part of this Government and have some strength there. I think we have enough on the record. I am half tempted to press the matter to a vote, but I will accept what has been said and leave the matter there. I beg leave to withdraw the amendment.
	Amendment 16 withdrawn.
	Amendment 17 not moved.
	Amendment 18
	 Moved by Lord Smith of Leigh
	18: Schedule 1, page 22, line 40, at end insert "no later than the end of November of each year"

Lord Smith of Leigh: My Lords, the local government finance report will be a really important document when it comes out. My two amendments in this group apply to that. In Amendment 18 we come back to this magic date of 30 November, but some date needs to be suggested. It is fundamentally important to local authorities that we should understand what is in this document within a reasonable time so that we can make budgets for future years. I recognise that it is a challenge for the department and the Secretary of State to agree to a particular date. Nevertheless, this is something that the department should aim for. We want reassurances that, due of the nature of this report, we will not be deferred even further down the line, and that we will be able to make a judgment on what each local authority's needs will be and what the budget will be for the following year.
	I do not intend to go through the detail of Amendment 73, but with this probing amendment I am trying to tease out from the Minister a good indication of what is contained within the finance report. I presume that most of these things would be in there, but I would be very grateful if she could confirm that.

Lord Jenkin of Roding: My Lords, I have three amendments in this group and I can put them swiftly to the House. Amendments 57 and 58 deal with what is to happen if there is a surplus, or what the Bill calls "the remaining balance", left over after the tariffs and levies have been made. The Bill, as it stands, says:
	"The Secretary of State may by regulations make provision about the basis ('the basis of distribution') on which an amount ... is to be distributed".
	It seems to me that it should be a matter not for the Secretary of State but for the local authority. Therefore, Amendment 57 sets out a slightly longer procedure which involves a consultation with the local authority about what is to happen to that remaining balance-whether it should be retained or distributed-and the basis on which it should be distributed.
	Secondly, it requires that to be dealt with through the local government finance report. That is what gives Parliament a say on this. Essentially, this seeks to provide, first, an opportunity for local authorities to express their views through consultation and then for Parliament to have the final say. It is not the end of the world, but I think that this is going in the direction in which we would want to move. If you are to have these elaborate procedures, it seems to me that parliamentary control is important.
	Amendment 78 proposes a new clause, which again requires consultation. The clause states:
	"The Secretary of State may not make any changes to national business rate policy which impact on local business rate yields without first consulting with all interested parties".
	For the life of me, I cannot foresee circumstances in which a Government would want to do this without consulting. It seems that this is a perfectly sensible procedure to put in. If you are going to change the basis on which business rates are collected, it should be a matter for consultation.
	We had a brief discussion when debating the previous amendment in which the noble Lord, Lord McKenzie, referred to the nationalisation of the business rates. I was responsible for that policy. When they were going to denationalise and decentralise, the main point was that businesses were charged rates by local authorities and had no vote. Therefore, business rates have been set nationally ever since. However, if the national rate is to be changed, there should be a process of consultation. I hope that the Government will be able to accept that.

Lord McKenzie of Luton: My Lords, we tabled Amendments 79 and 81 in this group. Amendment 79 revisits a debate we had in Committee concerning resetting-indeed, it revisits a debate we had earlier today. It requires arrangements whereby the Secretary of State must formally report on representations received from local government about resetting the system, and the outcome of the Secretary of State's deliberations on such representations. As we have discovered, resetting is a contentious issue. The Government have made their position clear: not before 2020. However, the fear is that the system introduced will not remain robust over that period and that many councils will find themselves in difficulties.
	As the Minister asserted in Committee, it is accepted that receiving and considering representations is a fundamental part of government work. The amendment seeks some transparency in the process. It seeks the formal detailing of representations so that the scale and scope of any concerns are clear. It also requires exposition of the Government's position and reasoning in response to such representations. The Minister will doubtless say that such an amendment is unnecessary if there is an undertaking to deliver what we seek. Perhaps I would agree, but I will make it clear that we seek a process that spells out for Parliament the representations that have been received and the Government's decisions thereon.
	Amendment 81 is more specific and requires a reset every three years, to coincide with each spending review. This will entail an assessment of relative resources and of the needs of local authorities. The exclusion of the specific issues that need to be assessed-deprivation, unemployment, child poverty, the number of looked-after children, adult social care and so on-emphasises not only the important role that local government can play, but what is at stake under these proposals. I offer that amendment in particular for noble Lords who expressed themselves in favour of resetting but did not feel able to sign up to a formal review process. It might be more palatable to some noble Lords; I will be interested to know whether it is.
	We thoroughly support Amendment 18, moved by my noble friend Lord Smith. We have added our names to Amendments 57 and 58, and support the noble Lord, Lord Jenkin, in tabling them.
	Amendment 73, tabled by my noble friend Lord Smith, calls for the Secretary of State to compile each year and for each authority in England a raft of information about resources, including estimates for subsequent years. As ever, it seems an entirely reasonable proposition. We also support Amendment 78, to which we added our names. This is about changes to national business rate policy that impact on local business rate yields, and the requirement for consultation. It is absolutely essential that it takes place because the ground has shifted on this. Local authorities are at risk; they are not just collectors of the business rate now. They are at risk from the consequences of how much is collected, how the system operates, and any policy changes that central government may feel inclined to make. That is a particularly important issue.

Lord Tope: My Lords, I will say briefly that the mishap to which I referred earlier has occurred again with these amendments. My name should have been on the amendments of the noble Lord, Lord Jenkin. It did not happen, but my support is there. Again, I will not repeat what he said. He made the case very well, and we are all keen to hear what the Minister has to say in response. My noble friend Lord Jenkin again confessed to being the man who nationalised the business rate. I think that we have all long since forgiven him for the errors and misdeeds of his youth. He has more than compensated for them in the years since.

Baroness Hanham: My Lords, I will start with Amendments 73, 79 and 81. I realise that that may seem slightly perverse given how they are laid out in the list, but it makes reasonable sense. Amendment 73 requires the publication of a raft of information that is already published by my department and is part of statistical releases that are all published as well-and will be in future. To say explicitly in the Bill that they must be published and laid out would be a quite unnecessary duplication. All the information will be set out in each year's local government finance report, and so will be available to all those who want it.
	Amendments 79 and 81 seek to ensure that needs are explicitly taken into account after the system is up and running, by providing for authorities to be able to make representations calling for a reset, and for the Secretary of State to make a reassessment of the system every three years. We discussed much of that and I will not again go through the arguments I made. I just need to say that to enable an effective incentive for economic growth, we need to give local authorities certainty about the length of time they will keep the rewards from generating local economic growth. That is the answer I gave earlier and that is what I say again. Frequent resets on the system would undermine this, to the detriment of the national economy and of local authorities. I hope that in due course noble Lords will not press those amendments.
	Amendment 18 seeks to ensure that the local government finance report must be laid before the other place by 30 November each year. The amendment is both impractical and unhelpful. When discussing the previous group of amendments, I explained that the local government finance report cannot be laid this year until after the Autumn Statement. The Chancellor recently announced that this would take place on 5 December. I also recognise the complications of this for local government budget setting, regardless of whether the rate retention scheme is introduced. I will not go back over the arguments presented to the House a moment ago, and I hope that the noble Lord, Lord Smith, will withdraw Amendment 18 on the basis that we have already discussed the issue.
	Amendments 57 and 58 were tabled by my noble friend Lord Jenkin, as well as by the noble Lords, Lord McKenzie and Lord Beecham-and by my noble friend Lord Tope in absentia. They seek to reverse the changes made in the other place to the way in which the Government will distribute surplus levy income. I sympathise with the intentions of the noble Lords who tabled the amendments. The Government's intentions were very similar when we introduced the Bill in the other place at the beginning of the year. However, after further consideration we recognised that specifying the basis for distributing the surplus levy in the local government finance report, as opposed to in regulations, was not advantageous for local government. Therefore, in responding to the amendments, I shall go through in some detail the advantages of the Government's approach. I hope that my explanation will address the concerns of noble Lords and underline why I will not be able to support their proposed approach.
	I remind the House that the levy on disproportionate gain is a key part of the business rates retention scheme, the safety net in particular. The money collected will be used for one purpose only: to fund safety net payments to local authorities that see significant reductions in their retained business rates incomes. The Government have always made it clear that, if any levy collected is not required to fund the safety net, it will be completely redistributed to local government. We are committed to this principle and we will not hold on to larger and larger surpluses.
	The amendments propose that the Secretary of State should consult with relevant local authorities when determining how much levy surplus to redistribute and how to do so. The amendments would require that this, and the amount to be paid to each individual local authority, would be set out in the annual local government finance report. I accept that this is admirable in principle but we think that this would have inadvertent consequences for local authorities. If passed, the amendments would be at the cost to local authorities of timelier and more certain surplus levy distribution payments.
	Setting out how the levy will be distributed in the local government finance report will mean that, when the Government have taken a decision to distribute surplus levy back to local authorities, these authorities will have to wait in excess of 18 months before they see the money and can use it to fund vital services. This drawn-out approach was of great concern in the other place, where it was described as "a recipe for uncertainty".
	The opposition Front Bench in the other place proposed that, once a decision to distribute surplus levy was made, the Secretary of State should have to hand over this money within the following financial year, in order to give local authorities more certainty about what they would receive and when they would receive it. The Government considered these points and agreed that a long delay was not acceptable. The Bill was therefore amended so that the process for distributing levy surplus, and the basis of distribution, will be set out in regulations. This will mean that payments can take place immediately after the decision to distribute surplus levy is taken.
	I am certain that scrutiny of these regulations will be robust. The Government will consult widely on the content of the regulations over the coming months, including with the Local Government Association and others. Furthermore, they will be affirmative regulations, subject to the approval of both Houses of Parliament. This provides appropriate parliamentary oversight.
	The earliest that surplus levy income can be redistributed is October 2014, the point at which local authorities will provide final data on their business rates income for the first year of the scheme. Eligibility for both safety net and levy payments will be calculated then. Regulations will be in place well before then.
	I hope that this explanation provides noble Lords with adequate assurance of both consultation with local government and parliamentary scrutiny. I hope that noble Lords will recognise the benefits of this approach, which is exactly what local government would want. On these grounds, I hope that noble Lords will withdraw their amendments.
	Finally, I turn to Amendment 78 on the impact of changes in national business rate policy. I thank my noble friend for the explanation of his amendment. I am sure that the House recalls the helpful discussion we had in Committee in July. However, I am also sure that my noble friend will not be surprised to hear that I do not consider such a provision appropriate.
	Under the current system, where locally collected business rates are redistributed to local authorities through the formula grant process, changes to national business rates policy do not affect the level of funding each local authority receives. The dynamic of that will alter under the business rates retention scheme. Changes in national business rates policy could both increase and decrease business rates income and therefore the level of funding available to local authorities. This relationship is at the heart of the Government's proposals to incentivise growth.
	However, I do not agree with my noble friend's argument that a requirement for consultation about such changes should be placed in the Bill. I firmly believe that the Government need to retain the ability to respond decisively to circumstances so that they can act in the wider interests of the country. These decisions are best taken by the Chancellor in the Budget or Autumn Statement, when matters of taxation can be considered in the round. In many cases, the Government will consult upon any changes, although I appreciate that may not always be the case.
	As I explained in Committee, changes to reliefs are a matter for the Chancellor. The deferral scheme, which gives businesses the opportunity to defer payment of 60% of the increase in their 2012-13 business rates bills as a result of the RPI uprating, was announced in the Autumn Statement. If the Government had consulted on that, businesses would have waited at least two or three months longer to receive the benefit, which in some cases could be the difference between a business closing or remaining open. The extension of small business rate relief is another good example of this.
	In cases where changes in national business rate policy would result in a cost to local authorities, this will be covered under the new burdens policy. This means that the Government will fully fund the additional cost in line with our commitment to keeping the pressure on council tax down as far as possible.
	I hope that my noble friend will agree that the new burdens policy and the standard practice of consultation provide local government with clear assurances. On that basis, I hope that he will withdraw his amendment.
	Amendment 18 withdrawn.
	Amendment 19
	 Moved by Baroness Hanham
	19: Schedule 1, page 23, line 10, leave out "sub-paragraph (2)" and insert "this paragraph".
	Amendment 19 agreed.
	Amendment 20
	 Moved by Lord Jenkin of Roding
	20: Schedule 1, page 23, line 16, at end insert-
	"(4A) Regulations under this paragraph and under paragraph 8 may, subject to such adjustments as may be specified in the regulations, define the non-domestic rating income of a special authority by reference to the amount which would be payable to it in respect of the year under sections 43 and 45 if-
	(a) the authority's non-domestic rating multiplier and small business non-domestic rating multiplier for the year were equal respectively to the non-domestic rating multiplier and small business non-domestic rating multiplier for the year, so far as relating to England, determined in accordance with Part 1 of Schedule 7, and
	(b) the authority acted diligently."

Lord Jenkin of Roding: My Lords, this amendment deals with the situation of the City of London as a "special authority" for non-domestic rating purposes; that is, of course, a statutory expression. Perhaps it would help if I explained a little of the background to the City of London's particular treatment for non-domestic rating purposes.
	I should say at the outset that this is a probing amendment; I do not wish to divide the House on it. It is intended to provide an opportunity for the Minister to clarify why this Bill does not refer expressly to the City's position and to confirm that this will be dealt with in regulations. Previously it has always been a matter of primary legislation. Now, if the Government can tell me that that will happen, it will be in regulations.
	The background to the City's particular treatment arises from the fact that the City is overwhelmingly a place for doing business and not for living in. Fewer than 7,000 individuals are currently on the constituency register of electors, and of course the number of actual households is far lower than that. So the council tax base is, in relative terms, very small. On the other hand, the City currently provides local services to more than 300,000 people who come in every day to work.
	The starkness of the imbalance between the local services needed to meet the needs of the daytime population and the income generated from the residential tax base is illustrated by the effect on the City of London when the community charge, the predecessor of the council tax, was introduced. Without special provision for the City, its residents would have had to pay an annual charge of £8,700 each, equivalent to about £19,000 in today's money. In other words, the general formula simply did not begin to work, given the City's unusual demography.
	It was for this reason that arrangements were made to treat the City as a special authority under that legislation. This had the effect of reducing the amount payable by residents to realistic levels. The cost of local services was to be met in part by businesses through a rate retention mechanism, with the City also being given the ability to levy a small local business rate. That is the system that operates today and which is, I think, a matter of general consent from the point of view both of the commercial population of London and of the residents.
	I hope that it will be apparent from this short explanation that the City of London regards the retention of this arrangement as important, not least for the safeguarding of its 7,000 residents. However, there is no reference in the Bill whatever to the City as a "special authority". The DCLG, my noble friend's department, has indicated in its technical consultation document, published in July, that the Government do not intend to disturb the status quo. My amendment tries to reflect that. I gather that the arrangement is assumed to be dealt with later by regulations, but it is not at all clear why the status of the City as a special authority has been omitted from the Bill. Accordingly, my amendment seeks to reinstate the existing references to "special authority" contained in the Local Government Finance Act 1988.
	The question is whether the arrangement should be in the Bill or whether it is sufficient to deal with it by regulations. It has always been in the Act and the City will be disappointed if it is not going to be in this Bill today. The amendment gives the Minister an opportunity to confirm that the situation is indeed as I have described and perhaps to indicate to the House why a reference to it has not been included in the current Bill. I beg to move.

Lord Ahmad of Wimbledon: My Lords, I am grateful to the noble Lord, Lord Jenkin, for raising this amendment, and I hope that I can provide him with the reassurances that he seeks. I have knowledge at a personal level of the City and its qualities and recognise the benefits that it brings to our country.
	As the noble Lord notes and so aptly describes, under the current system the City of London is allowed to keep extra resources from business rates. First, the City has the power to raise additional funds from its business rate payers through a higher non-domestic multiplier. This is known as the City of London premium. Secondly, the City is also allowed to retain £10 million of extra business rates income. This is known as the City of London offset. These extra resources are given to the City in recognition of its low council tax base.
	Her Majesty's Government agree that the City of London should be able to retain in full the City offset and any extra revenue that it can generate from the City premium. We made this clear in this summer's technical consultation, to which the noble Lord referred. Moreover, we have placed in the House of Lords Library the draft Non-Domestic Rating (Rates Retention) Regulations 2012. The regulations will determine through Schedule 1 the income to be included in the rates retention scheme. Paragraph 1(2) of Schedule 1 states that the income of a special authority, which also means the City of London, should be calculated on the basis of the national multiplier and not the special authority's multiplier. The same paragraph states that the calculation of income should be reduced by the value of the city offset, which is around £10 million as I previously stated.
	Paragraph 1(2) of Schedule 1 to the draft regulations will therefore ensure that any additional revenue from the City premium and the City offset will be retained in full by the City of London. I hope that this clear statement of government policy, together with the draft regulations to which I have referred, gives the noble Lord the reassurance that he and the City of London require. I invite him to withdraw the amendment.

Lord Jenkin of Roding: I am very grateful for my noble friend's very clear and specific assurances on that basis, but I am sure that he will understand that the City is a little upset that it is being dealt with through subordinate legislation whereas hitherto it has always stood on primary legislation. However, if the Government have made up their mind that that is how they are going to do it, so be it, and I have no doubt that the City authorities will come to terms with it afterwards. However much we may be trying to rebalance the economy, the City is such an important part of it that the authorities should always recognise that this arrangement must be preserved if it is going to be able to perform its role for the benefit of the very large number who come in every day and work there. I beg leave to withdraw the amendment.
	Amendment 20 withdrawn.
	Amendment 21
	 Moved by Baroness Hanham
	21: Schedule 1, page 23, line 20, at end insert-
	"( ) This paragraph is subject to regulations under paragraph 7A."
	Amendment 21 agreed.
	Amendment 22 not moved.
	Amendment 23
	 Moved by Baroness Hanham
	23: Schedule 1, page 23, line 35, at end insert-
	"( ) about the making of a payment by a billing authority to the Secretary of State or vice versa where-
	(i) a calculation of a payment under paragraph 6 is made by reference to an estimate of an amount, and
	(ii) it is subsequently determined that the actual amount is more or less than the estimate."
	Amendment 23 agreed.
	Amendment 24
	 Moved by Lord Jenkin of Roding
	24: Schedule 1, page 23, line 35, at end insert-
	"(3) The regulations must make provision to ensure that, where-
	(a) a billing authority is required to make a repayment or credit by regulations made under paragraph 2(2)(j) of Schedule 9, and
	(b) the requirement is the result of a relevant alteration of the authority's local non-domestic rating list,
	the amount of the repayment or credit is credited against subsequent payments by the authority under this paragraph.
	(4) A relevant alteration for the purposes of sub-paragraph (3) is an alteration made under section 55, which was-
	(a) an alteration of the rateable value of a hereditament shown in the list,
	(b) made on the grounds of an inaccuracy in the list arising from a change in the matter mentioned in paragraph 2(7)(e) of Schedule 6, and
	(c) attributable to a general change in the level of demand for, or supply of premises of a given use or occupation within the locality of the hereditament.
	(5) The regulations must make provision to ensure that, where-
	(a) a billing authority is required to make a repayment or credit by regulations made under paragraph 2(2)(j) of Schedule 9,
	(b) the requirement is the result of a relevant alteration of the authority's local non-domestic rating list, and
	(c) the authority has made a payment under paragraph 6(2) or 8(1) as a result of the relevant sum having been treated as forming part of the authority's non-domestic rating income for the year,
	the amount of the payment by the authority referred to in paragraph (c) is repaid to the authority or credited against subsequent payments by the authority under the same paragraph.
	(6) A relevant alteration for the purposes of sub-paragraph (5) is an alteration made under section 55, which was-
	(a) an alteration of the rateable value of a hereditament shown in the list, and
	(b) not made by reason of a material change of circumstances which occurred on or after the day on which the list was compiled,
	and the relevant sum for the purposes of sub-paragraph (5)(c) is the sum in relation to which the repayment or credit referred to in sub-paragraph (5)(a) is required to be made."

Lord Jenkin of Roding: My Lords, the amendments in this group, of which Amendment 24 is the first, are very long. I hope that the House may bear with me while I explain what they are all about.
	How to deal with errors in the valuation list and with the sometimes long-delayed impact of appeals was referred to in Committee, as was the question of how these would be dealt with in the face of the new system of local retention of business rates. I use the term "appeals" to describe all successful proposals by a ratepayer to reduce the rateable value shown for his property in the local rating list, and thus his liability to pay. In essence, the amendments are intended to protect against a large transfer of risk to local billing authorities. It is important to make the point that these are matters beyond the control of the local councils. That is the background to what the amendments are about.
	As part of local retention, the effects of valuation appeals in a billing authority's area would, unless there was some express provision to the contrary, directly affect the finances of the authority. Appeals are a particular concern because of their prospective and retrospective effects. They tend to take a long period to conclude and can therefore relate to circumstances which may have arisen some years previously. Therefore, the reduction in rateable value is often then backdated by several years. As a result, the authority is faced not only with a reduction in future income but with the immediate need to make backdated refunds, and consequent effects on cash flow.
	It is, of course, inherent in the notion of local retention that local rating authorities will be exposed to some volatility and risk to which they would not be exposed in a system of wholly centralised distribution as we have had hitherto. But there are certain sources of risk to which it would not be fair to expose individual billing authorities, even as part of a system of local retention.
	The appeals with which I am concerned are of two types. The first are appeals where the value shown in the rating list was, for whatever reason, inaccurate when the list was made. I shall refer to this category as "initial inaccuracy" appeals. The second type is where the value has become inaccurate as a result of a general movement in the local property market since the list was made. These are sometimes called "market movement" appeals.
	The initial inaccuracy type of appeal is fairly straightforward and can be dealt with quite shortly. Such appeals arise in a wide variety of circumstances. The central point for the present purpose is that the compilation of local rating lists is in no way the responsibility of local billing authorities. It is conducted entirely by the Valuation Office Agency, which is, of course, an agency of central government. Therefore, local billing authorities have no control over the accuracy or otherwise of the lists. This being the case, it would seem plainly unfair if a local billing authority were to find itself out of pocket by reason of some inaccuracy for which it was not responsible. That is the basic point of principle embodied in these amendments. I make clear that the amendments in relation to initial inaccuracy, and appeals of that kind, would not enable billing authorities to gain any benefit from any inaccuracy in the rating lists. They would not have any windfall from being able to retain the local share of overpaid rates. The amendments simply seek to ensure that billing authorities are not left in a worse position than they would have been if the list had been accurate to start with.
	Three elements are needed to protect them in this way. First, where the billing authorities pass on half the revenue that is collected to central government-the central share-and some of that revenue later has to be refunded to the ratepayer after a successful appeal, of course, in those circumstances, the Government must refund the billing authority for the share that was passed to it. Otherwise, the billing authority would be out of pocket and the Government would be left with a completely undeserved windfall.
	The second element is where the billing authority has to make backdated refunds, which means the system in past years has relied on an overgenerous assessment of the authority's financial situation. In other words, the authority's top-up will have been too low, or its tariff too high, because the calculation of the authority's baseline-the revenue expectation, which is taken as the starting point for the authority under the new system and which determines the level of its top-up or tariff-was influenced by an inaccurate rating list. Where the appeal succeeds, a backdated correction of the position between the ratepayer and the billing authority will always follow. Of course, it is only fair that this must be accompanied by a backdated correction in the position between the billing authority and the Government. Otherwise, the authority would be disadvantaged through an inflated calculation of its expected revenue.
	Thirdly, for much the same reason, the authority's top-up or tariff for subsequent years should be adjusted to take account of that reduced ability to raise revenue in the future. An authority's baseline is calculated by reference to the local rating list. Where an inaccuracy is revealed, it is right that the authority's baseline be adjusted to take this into account. Otherwise, their entitlement will continue to be calculated on an erroneous basis.
	I hope that the House will agree that really that is absolutely straightforward. It may be the intention of the Government to deal with these points through regulations. Of course, I have to raise this as an amendment on the Bill, simply as a matter of procedure, but I am looking for some assurances on that.
	The second type of appeal, on market movements, raises rather more complicated issues. I will briefly explain how this can give rise to appeals. It is not the basic intention behind the rating system, where alterations are meant to deal with immediate, physical changes to properties and their surroundings. The broader economic developments in the locality are meant to be taken into account only every five years, in the revaluation. However, the line between the two is blurred by reason of the general movements of the market, as a reflection of the principles of supply and demand, which is obviously manifest in the rate of occupancy of certain types of property in a given area. The interpretation of the valuation tribunal has been that pronounced changes in levels of occupancy amount to the sort of significant change that gives rise to appeals, even though the effect is, in truth, just that of a market fluctuation.
	This is likely, by its very nature, to affect a large number of similar properties at any one time. Liabilities for the authorities affected can be large and immediate. The threat is particularly severe in those areas that contain high concentrations of homogenous commercial property. The City, again, is an obvious example, but I understand that there has been a striking instance in Leeds, which has a thriving commercial district at its centre. It is a risk to which all billing authorities are exposed, to one extent or another.
	It is not immediately obvious, as with initial inaccuracy, why market movements should be excluded from the scope of the risk borne by the local billing authorities. I understand that, but it could be perfectly properly argued that local property markets are a reflection of the local business environment, for which billing authorities are at least in part responsible and which they ought to have an incentive to improve. However, this is not the path the Bill takes. The system has been designed so that market movements will not form part of the incentive for local billing authorities. The scope of the incentive-and of course, conversely, the risk-has been confined to the direct consequences of changes resulting from the addition or removal of properties from the list.
	This is evident from the Government's approach to revaluations, which are the primary way in which general movements of rental values affect a billing authority's revenue. The Government have stated that they intend to neutralise these effects in the local retention scheme by adjusting the top-up or the tariff of the authority. The rationale for that appears in the response of the Government to the consultation of the local government resource review. The reason given in paragraph 4.6 of the government response, published by my noble friend's department last December, is that to allow the effects of revaluation to fall within the scope of the retention scheme,
	"could lead to local authorities experiencing turbulence in their budgets as a result of revaluation changes which are, for the most part, out of their control. Allowing the impact of revaluations to feed through into the business rates retention scheme could result in significant changes to the income that authorities retain from business rates through no fault of their own".
	I accept that. It is obviously right. However, exactly the same principle requires that appeals founded on market movements should also be excluded from the risks faced by local billing authorities. It does not matter, for present purposes, whether the premise that such factors are largely out of the control of local authorities is right or wrong. What matters is that the principle adopted by the Government from the passage that I have just quoted, in such clear terms, should be applied consistently and fairly. If it is wrong that billing authorities should face adverse effects from local market movements through the mechanism of revaluation, it appears equally unfair that they should do so simply because it has been discovered through the mechanism of appeals.
	As a further point, which should make that inconsistency particularly invidious, market movement appeals are made only, by definition, by the ratepayer. There is no mechanism to do it the other way around. It is a particularly risky downside for billing authorities-a large transfer of risk to local authorities with no commensurate prospect of reward.
	In relation to this type of appeal, the amendments again have two strands. The first deals with the retrospective effect of appeals and requires the Government, in effect, to indemnify billing authorities against any refunds they are required to make as a result of backdated market movement appeals. The second addresses the prospective effect of appeals and requires that a billing authority's top-up or tariff be adjusted in future to counteract the loss of revenue resulting from a market movement appeal.
	In fairness to the Government, they have made some movement in response to the concerns about appeals. Initially, they seemed to take the position that the effects of appeals would simply form part and parcel of the increased volatility that would naturally face billing authorities in a system of local retention. In Grand Committee, and in the Government's technical consultation, this position has now been modified, which is very welcome. The historical incidence of appeals will be taken into account when determining the revenue expectations of local government in England as a whole. However, in my view and that of those who are advising me, that does not go far enough to meet the concerns. The losses incurred by an individual authority will arise to a large extent from one-off circumstances that will be difficult to predict with accuracy. The effect is that billing authorities will be left facing the consequences of factors entirely outside their control. The amendments would put in place a system ex post facto to the actual losses suffered by individual authorities. That would seem to be the fairest way to proceed; that is what ought to be done.
	Before passing on to what I hope will be a very short explanation of each of the five amendments that I have been describing, a point about the transitional position arises under the last of my amendments, Amendment 110. Your Lordships will be aware that under the current system all rating revenues collected by billing authorities are paid to the Government. Where a billing authority has to refund some of that revenue, it deducts the amount of the refund from subsequent payments to the Government. The concern is about the case where, after the Bill has come into effect, a billing authority has to make a refund in respect of revenue collected under the previous system. Such revenue would have been passed to the Government in its entirety. It is plain, therefore, that a billing authority in that situation should be able to deduct the whole of the refunded amount from its subsequent payments to the Government. Otherwise, it would suffer a loss while the Government would retain a windfall. Again, I would welcome a response from my noble friend about the Government's intentions on the transitional period.
	Very briefly-and I am sure that the House will be relieved-I shall deal with the specific amendments. It is not easy to draft amendments when you are not actually amending the Bill, but if it is to be done by regulation, this is the only way to do it. Amendment 24 concerns the refunds which billing authorities are required to make after a successful appeal is backdated. For inaccuracy appeals, the amendment would allow the amount to be refunded by the billing authority to be reclaimed from subsequent payments by the authority to the Government.
	Amendment 37 would require that top-ups and tariffs be adjusted to account for the effects of the appeals on a billing authority's future income. Top-ups and tariffs are of course determined against an authority's baseline, so the mechanism concerns the calculation of the baseline. Amendment 38 would require a billing authority's top-up or tariff to be adjusted in a given year to compensate for inaccuracies in the top-up or tariff in past years, as revealed by original inaccuracy appeals. Amendment 40 is a short, consequential amendment which ensures that the provisions of Amendment 37 apply to local government finance reports in the same way as to the original report. I have already referred to Amendment 110. I beg to move.

Lord McKenzie of Luton: We have tabled Amendment 82 in this group, to which I will speak very briefly because it has effectively been covered in the subset of the amendments spoken to by the noble Lord, Lord Jenkin. It deals with refunds of non-domestic rates in circumstances where the rates were collected and paid over in a period prior to 1 April 2013 but where, under the new system, an authority has to reimburse a business rate payer on appeal. Our amendment states that there should be reimbursement in the first case from,
	"undistributed business rates at 31st March 2013",
	and then from the central share. I take this opportunity to ask the Minister: what is the level of the undistributed business rate at 31 March 2013? A letter before Third Reading would be fine.
	Amendments 24, 37, 38 and 40 are extensive and complex, and I know that they have been pursued by the City of London. I am grateful to the noble Lord, Lord Jenkin, for securing a briefing which certainly helped our understanding of what it seeks to do. As we have heard, it seeks to address what is argued to be an inequity in the current business rate retention scheme proposals arising in respect of valuation appeals. As we have heard, they form two types of appeal in particular: those arising from error from an initial valuation being too high; and those arising from market movements such as a general fall in the local property market.
	The amendment proposes a three-part solution for the impact of the initial valuation appeals. For any business rates collected and passed over to or shared with the Government, there should be a refund to local authorities which have had to fully reimburse the ratepayer. Those should be very straightforward. Secondly, top-ups and tariffs should be adjusted to reflect lower incomes from the past. Thirdly, top-ups and tariffs should be adjusted for the future to reflect lower business rate income. That is the proposition, and a similar approach is suggested for market property movements.
	The case for neutralising the effect of market reductions, as the Government propose for market revaluations, seems entirely reasonable. My uncertainty, without having had the opportunity to work through this in great detail, is whether the express remedies relating to the adjustments of top-ups and tariffs can work as suggested. While the legislation would allow adjustment for individual authorities for those components, the system envisages calculation of aggregate business rates and proportionate shares. Recognising changes to some local authorities would imply changes to the whole way in which the formula works. Obviously, the process of resetting would cover that, but its timing cannot be driven by the outcomes of appeals. The issues raised by the amendments are real, but I look forward to the Minister's response on the particular solutions proposed.

Baroness Hanham: My Lords, I thank my noble friend Lord Jenkin for explaining his long amendments so succinctly. I hope that I can be succinct in response; I can see people looking at their watches. We have recognised the question of appeals from the outset. As early as the summer of 2011, we recognised that the rate retention scheme would have to accommodate the volatility that exists in the business rate system.
	My noble friend gave us all the notes and half the answers, so some of this will be repetition. The technical paper to which he referred, published in August 2011, looked at the question of the volatility of the rating system, such as from rating appeals, and considered how it should be treated in the rate retention system.
	Rather than seeking to categorise in some way all the many thousands of alterations to the waiting list made each month, we proposed a general safety net to protect authorities from large reductions in their income, whatever the reason for it. Almost 80% of the respondents to the consultation agreed with the general safety net approach, so that is what we have adopted in the Bill. Conversations with local government are still going on about the issue; they went on throughout last year. We continue to explore whether it would be possible to isolate specific types of alteration to the rating list, but we have not seen any proposals-even in the amendments tabled by my noble friend-which would adequately address the issue in a fair way while maintaining a reasonable share of risk and reward between local and central government. Noble Lords will recognise that appeals can go either way. You may end up quids in on one appeal and quids out on another, but a local balance can be struck from that.
	The amendments precisely illustrate the problem as, taken together, they would pass to central government all the risk associated with most alterations to the rating list, including all alterations to the current compiled rating list. They would leave central government carrying most of the risk on business rates while allowing local government to pick up all the rewards when the rates go up. That does not strike the right balance, but our discussion with local government has not found any better formulation than we have here at the moment. That is why we are proposing in the Bill a general safety net to protect local government income from alterations to the rating lists, whatever the reasons for that change. The safety net will work on the basis of the baseline.
	There was mention of transition. We recognise that when the rate retention scheme commences there will still be historic alterations to be made to the rating lists. Many of these alterations, including additions for new buildings as well as reductions from appeals, will be backdated into years prior to 2013. While this is all part of the system that we will localise from next April, we appreciate that not all alterations have been captured in the baselines when setting up that system. We have therefore promised that some allowance should be made for appeals when setting it up. To deliver on this promise, we will adjust the starting position for local authorities so that they have extra financial headroom for changes to the rating list, such as from appeals-and that will be in the baseline. We will set out the size of this adjustment in the draft local government finance report. The adjustment will provide extra cash for local government to manage its appeals.
	I accept that the matter of volatility in the rating system is a challenge for the rate retention system. As I have said, it is a matter we have recognised from the outset. We have been and remain in discussions with local government throughout the passage of the Bill. The combination of a general safety net and an allowance for appeals in the set-up of the scheme seems to provide a reasonable solution and the right balance of risk and reward. My noble friend has laid out at great length the problems which London Councils, in particular, may still see but I hope that I have demonstrated that the Government have listened very carefully to what has been said and that there is a solution here which will be fair to just about everybody. I hope that my noble friend will be able to withdraw his amendment.

Lord McKenzie of Luton: Before the noble Baroness sits down, can she deal with the point about the undistributed rates at 31 March and what the quantum of that is?

Baroness Hanham: I apologise to the noble Lord but I think that when he asked the question he anticipated that that is actually quite detailed. It is not a figure that I have just got in my head, so perhaps I may write to him to give it.

Lord Jenkin of Roding: My Lord, my noble friend has made it very clear that these matters are going to be dealt with in regulations. There will therefore be the opportunity to consider those regulations in draft and if necessary, to negotiate. As I understand it, the City authorities have been negotiating with my noble friend's department for some time on this. This is not a new thing, but there still has to be an opportunity to try to reach a sensible agreement. I understand the point that my noble friend has made about not loading the whole thing on to government, but that agreement has to be fair to both parties. Having heard that, however, I do not think that I should talk any longer and I beg leave to withdraw the amendment.
	Amendment 24 withdrawn.
	Amendments 25 to 30
	 Moved by Baroness Hanham
	25: Schedule 1, page 23, line 35, at end insert-
	"Regulations about deductions from central share payments
	7A (1) The Secretary of State may by regulations make provision for the deduction from a payment to be made under paragraph 6 by a billing authority to the Secretary of State of an amount to be determined in accordance with the regulations.
	(2) The regulations may, in particular, make provision for the determination of an amount to be deducted to be made by reference to the operation in relation to the billing authority of section 47 (discretionary relief).
	(3) The consent of the Treasury is required to regulations under this paragraph."
	26: Schedule 1, page 24, line 13, leave out "the local share of"
	27: Schedule 1, page 24, line 16, leave out "sub-paragraph (4)" and insert "this paragraph"
	28: Schedule 1, page 24, line 26, at end insert-
	"( ) The regulations may not have the effect that the total amount payable by a billing authority under the regulations for a year exceeds the billing authority's local share of its non-domestic rating income for a year."
	29: Schedule 1, page 24, line 36, leave out "or this paragraph" and insert ", this paragraph or Part 6 (funds) so far as applying to non-domestic rates"
	30: Schedule 1, page 25, line 6, at end insert-
	"( ) about the making of a payment by a billing authority to a major precepting authority or vice versa where-
	(i) a calculation of a payment under regulations under paragraph 8 is made by reference to an estimate of an amount, and
	(ii) it is subsequently determined that the actual amount is more or less than the estimate."
	Amendments 25 to 30 agreed.
	Consideration on Report adjourned until not before 8.43 pm.

Education: Conservatoires
	 — 
	Question for Short Debate

Lord Lipsey: To ask Her Majesty's Government whether they will meet the funding needs of the United Kingdom's conservatoires.

Baroness Stowell of Beeston: My Lords, before we start the next debate noble Lords will obviously know that it is time-limited. This is one of those tricky ones where we have great interest in the debate, which leads to a very limited speaking time for Back-Bench contributions: two minutes, except for the noble Lord, Lord Lipsey. I will endeavour to have us working together. If everybody were to have three minutes, it would take us over the hour but at two minutes I will try not to be too draconian. I am sure noble Lords would not want me to be that. If we can all come in together at an hour at the end of it, that would be marvellous. Thank you.

Lord Lipsey: My Lords, I start by declaring two non-pecuniary interests: as chair of the all-party classical music group and, as of 1 October, as chair also of the Trinity Laban Conservatoire of Music and Dance in London. I imagine that most of the many noble Lords participating in this debate have had the experience of walking into a music conservatoire. In my new position, I have the privilege of regularly walking in to the magnificent old naval college building in Greenwich, where the Trinity music school is situated, to find a jazz saxophonist practising up there, Bach cello music coming from down there and a bit of John Cage-I do not necessarily move towards that window-coming from over there. On the same visit, I may go to the Laban dance building, which won the Stirling architecture prize. There, because it does modern dance, you see bodies of all shapes and sizes-and yes, of course, of both sexes but also of every kind of racial background that you can imagine-working and working to perfect their art form. Every time that I go in there, it sends a tingle down my spine.
	I am tempted just to say that and sit down, which might be very welcome as the House does not like people to go on for too long. The reason that I could sit down is the number of noble Lords who have put their names down to speak in this debate, even though they know that once they have cleared their throat they will have to sit down again. This really shows that this is one of those issues which may not seem huge on the great national tapestry but are of burning importance, not just to the people who work or study in the sector but to the whole of the culture. If anything in this world is of value, it is music, dance and drama and the conservatoires that make them possible.
	I should also say at the beginning that this is not a "bash the Government" debate. I can do "too many cuts" speeches off the top of my head; I have been doing them for many years. When the Government introduced their new arrangements for higher education funding, I think that the special circumstances of the conservatoires did not enter their heads. That was certainly the impression that I got from ministerial correspondence at the time. However, to be fair, the Government have since woken up to the problem. My classical music group had an excellent meeting with David Willetts, the responsible Minister, over the summer. He was very concerned to listen to us. The Higher Education Funding Council for England is also sympathetic. This is not about "damn cuts" but it is, I suppose, special pleading and I will now make that special plea.
	What, in a nutshell, is the problem? It is this: conservatoire education is by its very nature expensive to provide. You need one-to-one teaching; you need lots of space for people to practise; you need decent instruments, which are a lot more expensive than the whiteboard arrangements needed at a normal university. In recognition of this, successive Governments have provided funding for the sector-most notably through the exceptional funding that HEFCE provides. This is now coming under pressure. The higher education review that the Government published envisaged much higher fees and a consequent reduction in special funding. We are not going to argue with that; our fees will go up, as have those of other undergraduate institutions. However, we do not even have a guarantee that special funding will continue beyond the end of this year. HEFCE has kept it going for a further year in 2012-13 but is reviewing it now. An announcement is expected in December 2012. My colleagues and I operate every day with the sword of Damocles still poised over our heads.
	The situation is very tough. HEFCE funding has been reduced by £9.7 million in cash terms and 16.1% in real terms since 2009-10. All conservatoires have been hit by the previous Government deciding that if you had done a first degree somewhere, you could not then go and do a first degree somewhere else and be funded for it. So someone who is a chemist but turns out to be a brilliant pianist cannot now get any funding if they go off to do a degree in piano. There has been a virtual removal of capital funding for teaching, which, as I said, needs to be much higher-you cannot buy a Steinway for the price of a blackboard. So the general situation that we face is very tough.
	We ought to have a sense of proportion about this funding gap. The total funding for exceptional funding from HEFCE is £20 million. At the Conservative Party conference this week-this is not a party political point-the Government said that they were seeking, from social security benefits alone, cuts of £10 billion. That is 500 lots of our total funding. This money is not material in terms of its impact on the deficit, on the Exchequer or on anything like that, but it is oh so material regarding what happens at our conservatoires.
	It is not easy for us to find other income. For example, we are looking the whole time for more foreign students but we face a great deal of competition, including from European institutions which are subsidised by their Governments, and now we have the problems created by immigration law, which were dramatically illustrated by the London Metropolitan affair. Trinity Laban suffers because the Americans have just cut off loans that were previously paid to fund students from the Americas because we do not have degree-awarding powers yet. The Government have made it more difficult for our students to get jobs after graduation, since you have to show that you can earn £20,000-plus a year and it is not easy for a music student to do that because they have a portfolio of earnings that come from different places.
	We are also trying for philanthropic support, but that is not an instant solution either. The easiest thing to raise philanthropic support for is scholarships, but that just means that you get one student paid for by philanthropy who otherwise would be a student paid for through HEFCE in the normal way of business. It is not just money that goes through to the bottom line. We work on commercial money like mad but it is not easy to make yourself a billionaire from music.
	Costs are being cut to the bone. I mentioned the beautiful buildings in Greenwich but I am afraid that the paint is peeling. It is hard to escape the conclusion that a proper contribution from government is essential if the conservatoires are to survive and prosper. This was recognised in the report by Darren Henley, the boss of Classic FM-no egghead he, but a good egg nevertheless-whose cultural education review in 2012, which the Government were very keen on, said:
	"The government should recognise the need for exceptional funding for culturally based conservatoires, which train the artists, actors, dancers and musicians who will create and perform the culture of the future. The funding settlements for these conservatoires should be secured for the long-term".
	That last sentence is very important. It is not easy to plan the future and institutions such as this if you do not know where next year's money is coming from.
	With cuts here, there and everywhere-£10 billion of cuts-some might question whether institutions such as the conservatoires should be a priority for public spending, but no one should doubt the contribution that they make to the economy. Trinity Laban is in the top five higher education institutions in the country in terms of its graduates going into jobs. These are motivated people who are determined to work and find a way of making a living. Conservatoires contribute to jobs and to foreign exchange with students from abroad, and culture today is big business. However, I defend conservatoires not simply on those grounds but on these: our resilience as a nation in the crisis that we face in our economy depends not just on material matters-it depends on the values that sustain us as a society. A land without music, every kind of music, or dance of the highest quality is a land that has lost its soul, and once it has lost its soul it will lose the rest of its way too.

Lord Lexden: My Lords, after thanking the noble Lord, Lord Lipsey, for initiating this valuable debate, I shall make brief reference to Northern Ireland, which is my second home. The long tradition of fine classical music-making in the Province, the land of Sir Hamilton Harty, is insufficiently celebrated. Too much is made of the raucous thumping tones through which the divided communities have marked their differences, and too little has been heard of the way in which great music helps to bring members of both communities together, particularly young people blessed with rich talent.
	Northern Ireland does not have a conservatoire of its own. There are some who would like one to be established but the reality is that its population resources are not large enough to support such an endeavour, so its promising young artists adorn the music colleges in other parts of our country. Many take pride in displaying their skills back in Northern Ireland itself, encouraging others to follow their example-none more so than Barry Douglas, a brilliant pianist born and educated in Belfast before becoming a quite outstanding student at the Royal College of Music in London, where he laid the basis for his ever-growing international career. Each year he directs the International Festival of Chamber Music held at Clandeboye in County Down.
	Nowhere is there greater interest in securing the financial future of our conservatoires than in Northern Ireland. This should not be taken to imply that little or nothing is done in Northern Ireland itself to nurture young talent; on the contrary, ambitious education schemes flourish. The recently formed Northern Ireland Opera has led the way in providing access to outstanding music education. The winner of its 2012 young singer of the year award, Dawn Burns, is currently studying at the Royal Welsh College of Music and Drama. Next month she returns to Belfast to sing with the Ulster Orchestra and international opera star Barbara Bonney. This one example illustrates the broad theme that I want to underline-the crucial and often interlocking work done both in our conservatoires and in Northern Ireland itself to enhance one of the glories of our country:
	"Music, the greatest good that mortals know,And all of heaven we have below".

Lord Maclennan of Rogart: My Lords, I, too, wish to congratulate and felicitate the noble Lord, Lord Lipsey, on obtaining this important debate, which I believe is very timely. It appears that the conservatoires have almost inadvertently been overlooked in the structure of higher education; there has been a real-terms reduction in expenditure on them since 2008-09. The importance of these bodies is beyond challenge, and the number of people applying to speak in this debate is an indication of the width of support that the conservatoires enjoy. I speak as a Scot and recognise that the cultural life of Scotland is of massive importance; there is nothing outside the Olympic Games that attracts more people to this country than the Edinburgh International Festival, and our efforts in promoting the work, talent and creativity of the individuals who are now artists known worldwide are of significant importance.
	In the very short time that is available, I ask the Government to recognise that what is required is a new structure for the funding of the conservatoires that recognises their legitimately very high costs and the length of training that they require. These are not spendthrift institutions but they have expensive requirements, and that needs to be taken into account in determining our policy.

Baroness McIntosh of Hudnall: My Lords, I congratulate my noble friend Lord Lipsey both on securing this debate and on his recent appointment, which I had not known about and am delighted by.
	I remind the House of my own interests. I have spent all my professional life working with people who have come through conservatoire training; I have observed them, employed them and advised them and for a short while I was in charge of them as, briefly, principal of the Guildhall School of Music and Drama. Furthermore, both my children are conservatoire-trained, so I think I may say that I have seen this kind of education close up, and these are some of the things I know. First, conservatoire training is intense and rigorous, and requires tremendous dedication. For musicians in particular, the road is not only hard but long. Secondly, it is therefore expensive to deliver. Thirdly, students who secure the few available places do so in the face of fierce competition and are often highly skilled before they even start. Fourthly, conservatoire graduates are central to the continuing worldwide success of UK arts and culture, which is critical to our economy.
	There is currently, as we heard from my noble friend Lord Lipsey and others, a damaging degree of confusion and uncertainty about whether the necessary special funding for conservatoires will be properly secured. I should like to quote from a letter I received recently from the principal of one of our leading conservatoires in this country. He puts it thus:
	"What we have at present is a cocktail of inadequate formula funding with various stop-gap supplements plus an institution-specific supplement that is subject to review every four or five years. It's a mess. HEFCE do a really good job of making do and mending but ... this has never been translated into the price group structure that has underpinned HEFCE funding for many years. They allocate conservatoire training to a low price group and then wonder why the fee plus teaching grant doesn't meet the costs and needs a supplementary discretionary top-up".
	He goes on to say:
	"What we need is a structure that recognises ... the legitimate high cost and length of training required".
	Of course that is what we need. Why can we not do this when we can do it for other disciplines such as medicine, which also requires long training and high-cost teaching?
	The noble Viscount, Lord Younger, is, I know, something of a performer himself. I am sure he perfectly understands these issues, and I hope that when he winds up, he can give the conservatoire sector some hope that they may be resolved.

Lord Low of Dalston: My Lords, all those who experience the arts as part of their very lifeblood and that of the community in which they live must be indebted to the noble Lord, Lord Lipsey, for raising these important matters. It is a rash man who would venture into the same territory as the noble Baroness, Lady McIntosh, with her unrivalled expertise in this area, especially in two minutes, so I shall not try.
	Rather, I wish to use my time to highlight some of the problems that conservatoires are experiencing with the UK Border Agency, such as the costs and delay in issuing visas, their unjustified refusal and so on. Because the UKBA cannot give a more accurate estimate of the time needed to process postal applications than four to 14 weeks, some students with late offers have been forced to pay for the premium service. In most cases, application decisions are received sooner than this, but the unpredictability means that most students will not risk overstaying on their current visas in case they receive a rejection or refusal after several weeks. Added to the sort of problems referred to by the noble Lord, Lord Lipsey, these things, together with the cost of tuition here and restrictions on post-study work, have begun to make training in this country much less attractive than it was.
	London was always the number one destination for the world's most talented music students, but the recruitment of international, and particularly non-EU, students, who have contributed so much to the high quality and worldwide reputation of UK conservatoires, as well as their financial sustainability, is now increasingly under threat. The tier 1 post-study work immigration route provided important opportunities for conservatoire graduates to gain invaluable performance experience, which is so crucial to the development of a career. The closure of this route and its proposed replacement with tier 2 graduate employment for those on a salary of over £20,000 has little application in the music and performing arts sector, where people have a portfolio career and are mainly remunerated by one-off performance fees or commissions. No wonder that a former overseas student of whom I have knowledge is saying that if she was looking to study abroad today, she would not come to the UK because the climate is too hostile. She would go to Australia instead.
	There is more that I could mention, but I have necessarily had to be selective. I hope that the Minister will be able to take some of these points on board and address them in his reply, or if not at least to take them away for more mature consideration.

Lord Wills: My Lords, I, too, congratulate my noble friend Lord Lipsey, and I thank him for initiating this important debate. As the noble Lord, Lord Maclennan, has said, the number of noble Lords who are participating indicates the importance that this House attaches to the role of these crucial institutions in our cultural life. In the couple of minutes available I want to focus, as my noble friend Lord Lipsey and the noble Lord, Lord Low, did, on the position of international students. Not only do they make an invaluable contribution with the considerable fee income that they bring in to these institutions, they are also largely responsible for an important and irreplaceable creative input, widening the diversity of excellence and musical influence, which benefits all students. It is therefore important that we should do everything possible to encourage these students to continue to come and study here.
	I want to raise four particular concerns by asking the Minister four questions. First, as we have already heard, the replacement of the post-study work immigration route with a qualification through graduate employment raises particular problems. It is largely irrelevant to musicians, very few of whom go on to earn a salary. Will the Minister undertake to look at what can be done to make these provisions more appropriate for musicians? Secondly, in small institutions such as the conservatoires, with relatively few overseas students, a small number of visa refusals, sometimes for reasons way beyond the control of the conservatoires themselves, can affect their status as highly trusted sponsors. Again, will the Minister undertake to see what can be done to make these provisions more appropriate for the conservatoires?
	Thirdly, the Minister will be aware, as my noble friend Lord Lipsey has already alluded, that the US federal loan board has withdrawn loans for studying at UK institutions that do not offer their own degrees, and that includes conservatoires. Can the Minister confirm that the Government are doing all they can to get the US authorities to look again at this decision and say when Ministers expect next to meet their US counterparts to discuss the issue? Finally, the Minister will accept that the decision about London Metropolitan University's highly trusted sponsor status has created alarm among overseas students. What are the Government doing to reassure these students that they are welcome to continue to come and study here?

Lord Black of Brentwood: My Lords, I declare an interest as a member of the council of the Royal College of Music, a remarkable centre of excellence that produces the same tingle down my spine that the noble Lord, Lord Lipsey, experiences. In 1882, the Prince of Wales posed our artistic forebears a question: "Why is it that England has no music recognised as national? It has able composers, but nothing indicative of the national life ... The reason is not far to seek. There is no centre of music to which English musicians may resort to derive instruction, counsel and inspiration". The answer to his question was the foundation of the RCM which, in the years since then, has acted as just such a centre of music. It is a beacon of talent and expertise that feeds the creative life of our country and helps to shape its artistic character.
	In these days of serious challenges for public funding, it is necessary to prove the added value of such institutions. That is exactly what a recent invaluable report from the LSE on the impact of the London conservatoires on our economy did. It shows how conservatoire graduates are disproportionately represented in the highest achieving and economically active sectors of the profession, including providing half the players in London's leading orchestras. It notes how the music sector constitutes a sizeable proportion of the creative economy, comprising 7,900 businesses-and conservatoire graduates are powering its growth.
	Conservatoires are vital, but they are also expensive. As we have heard, delivering the musical curriculum means intensive and often individual mentoring and coaching as well as performance spaces that replicate professional conditions. Those significant extra costs are the reason why successive Governments have ensured that the conservatoires receive exceptional funding. The long-term maintenance of that funding is crucial, especially as our colleges face so many other business challenges, including rising costs, capital funding and long-term risks to their ability to recruit.
	Our conservatoires are jewels in the UK's artistic crown. They have trained some of our greatest composers and conductors. They bring life to our capital city and they attract musical talent from across the world. They contribute to vital research, and above all they help to support local community artistic and musical life. I know that times are hard, but hard times force us to concentrate on what is absolutely vital-and these institutions are. The support that the Government have given them is extremely welcome, and I hope that tonight there will be another clear commitment from the Minister to their future.

Lord Haskel: My Lords, what I found particularly interesting about the Olympics was the interviews. Without exception, the medal winners told us that their achievements were due to the individual and continuous support that they had-one-on-one support that enabled them to achieve such high standards in their sports. As my noble friend Lord Lipsey described, this is what conservatoires do for music.
	Over the years, Aldeburgh Music has developed into a place where musicians can come for that one-on-one continuous professional support and training. Jonathan Reekie and his team provide support at every stage of development, starting with young musicians, going on to supporting musicians at conservatoires, continuing to support the emerging professionals through the Britten-Pears young artist programme-which is, incidentally, the largest in the UK-and going on to master classes and residences for accomplished musicians who want to do better. Its sense of mission for continuous improvement, even for the most accomplished musicians, makes it one of our most valuable institutions for encouraging and developing talent-and, of course, Aldeburgh is a lovely place to be.
	This is not special pleading for Aldeburgh. What I am pleading for is recognition that maximising human development and talent through institutions such as conservatoires and Aldeburgh is expensive, but it is the only plausible strategy for winning gold medals in the future for our music and for its contribution to our culture, our society, our economy and to feeling good about ourselves. That is why they should have proper financial support.

Lord German: I congratulate the noble Lord, Lord Lipsey, on this timely debate. Tonight, we are celebrating the spectacular contribution that conservatoires bring to the culture of our country and to performing arts in particular. We should also be celebrating the fact that just one-quarter of 1% of the student population of this country is contributing over £2.5 billion a year to its economic life. A small contribution from the state produces a much bigger return for our country as a whole. That economic fact cannot be overlooked.
	It is true that we have to use large amounts of capital funding to be able to train and work with these students. They need large performing spaces, very expensive instruments and very expensive equipment. Let us compare that with the sciences, particularly medicine and dentistry, which also require large-scale capital investment. Institutions teaching those subjects are able to get research funding that is not available to conservatoires.
	The problem that we have seen in England can be contrasted with the role of the Higher Education Funding Council for Wales. I pay tribute to the noble Lord, Lord Rowe-Beddoe, because if anybody walks into the Royal Welsh College of Music and Drama now, they will be astounded. Their breath will be taken away by the facilities in that brand-new building which contributes so much to our cultural life. The Higher Education Funding Council for Wales has a new premium funding which has tried to give to medicine, dentistry and other capital-intensive higher education institutions the ability to fund on a longer-term basis. The problem for HEFC in England is that it has had many supplementary grants but not brought the patchwork quilt together. My message to the Minister is that continued funding, in a comprehensive and sustainable way, is essential.

Baroness Warwick of Undercliffe: My Lords, I, too, thank the noble Lord, Lord Lipsey, for securing this very timely debate, and wish him many enjoyable and spine-tingling musical moments in his new association with Trinity Laban. It is clear from the debate that there are many of us in this House who share his concern over the impact of funding cuts and short-term funding formulas on our conservatoires. As other noble Lords have said, a conservatoire education may be expensive, like medicine or dentistry, but it is part of our cultural lifeblood. I strongly support my noble friend's call for a long-term funding solution that recognises the legitimate high cost of conservatoire training and places it among mainstream higher education.
	At this stage in the debate, it would probably be enough to say amen to all the points that have already been made, but I join our choir tonight to emphasise just two points. I was dismayed to learn that the US federal loan board is withdrawing loan facilities for study at UK institutions that do not offer their own degrees. It questions their legitimacy as listed bodies within the UK higher education sector. It affects a number of conservatoires, including Guildhall School of Music and Drama and Trinity Laban, whose awards are validated by City University, as well as others such as Glasgow School of Art. This has serious implications. The US is an important source of international students for our conservatoires, but these students depend heavily on getting study loans from US federal authorities. Can the Minister say whether the Government can assist in any way in convincing the US to change its position?
	Secondly, the closure of post-study work visas, which enabled conservatoire graduates to gain experience as independent artists and performers before returning home, is a further blow. The proposed alternative for graduates on a salary of over £20,000 means little in the music and performing arts sector where, as the noble Lord, Lord Lipsey, and others have said, graduates have a portfolio career and are usually paid in one-off performance fees or commissions.
	The education and training offered to the world's most gifted practitioners is of necessity lengthy and expensive. So, in harmony with others in this debate, I ask the Government why these institutions continue to be subject to short-term, make-do-and-mend funding arrangements.

Lord Aberdare: My Lords, I, too, thank the noble Lord, Lord Lipsey, for initiating this important debate, and I shall try to make sense of those of my notes that have not been crossed out during the course of the debate.
	As we have heard, the UK's conservatoires represent a priceless competitive advantage, not just cultural but economic, that is quite disproportionate to their relatively small scale and cost. We really must not risk losing this, especially through inadvertence. The Government should be commended for recognising the value of conservatoires and continuing to provide exceptional funding for them, as do the Welsh Government for the splendid Royal Welsh College of Music and Drama. Surely it should be possible to give the conservatoires rather more confidence in the continuing availability of this funding, at least for a period of two or three years ahead, instead of the current situation where funding may be reduced even within the current year.
	Secondly, we have heard from the noble Lords, Lord Low and Lord Wills, about the danger signs that the UK could be seen as a less appealing destination for overseas students as a result of issues over student visas and the reduced freedom for students to work in the UK after completing their studies. Why can the Government not find a way to offer a special limited exception for bona fide graduates of UK conservatoires from the current constraints which effectively prevent them undertaking performance work after their formal studies and thereby benefiting fully from their conservatoire experience? As we have heard, training to become a performing artist can take at least six years, or more for opera singers. There are many bodies that provide support beyond the conservatoire stage. I have been involved with one of them, the National Opera Studio. These bodies, too, need their funding protected in order to reap the full return from the work of the conservatoires.
	I am heartened by the Government's commitment to continued support for conservatoires. There is clearly no direct threat to kill the goose that lays such golden eggs for the UK, but I trust the Government will also ensure that the goose does not little by little become so deprived of sustenance and of an environment in which it can thrive that it dies anyway.

Lord Kennedy of Southwark: My Lords, I, too, thank my noble friend Lord Lipsey for initiating this important debate in your Lordships' House tonight. I knew of my noble friend before I entered this House, but I did not have the privilege of meeting and getting to know him until I was a Member. We have found that we agree on a number of diverse issues, and it is always a pleasure to be in his company.
	While I was at school, I learnt to play the bassoon. I can advise your Lordships' House that I was a very average player, but I am immensely grateful to my school, the former Inner London Education Authority and the Centre for Young Musicians for the help, support and encouragement they gave me and my fellow pupils. One or two of my fellow pupils got the opportunity to study at our conservatoires, and it is vital that the Government meet the funding needs of these centres of excellence.
	The United Kingdom is seen as a centre of excellence in music. We not only produce from our own citizens some of the finest musicians in the world, but some of the finest musicians in the world come here to study because of our centres of excellence. It is not measured in fee income from home or aboard but in our influence, the vibrancy of our cultural scene and that in each of the nations in the United Kingdom, world-class concerts, events and productions of a staggering variety are taking place every day which people from all parts of the United Kingdom pay to enjoy. Tourists from all around the world come here because of the reputation, quality and variety of concerts and other productions. For relatively modest sums, the payback is measured in billions of pounds, thousands of jobs and the wonderfully creative things that we all enjoy and benefit from.
	So I want the noble Viscount, Lord Younger of Leckie, to be a champion for our conservatoires and to make the case for exceptional funding. We have been the shop window of the world this year, with the Olympic and Paralympic Games and the Diamond Jubilee of Her Majesty. It would be a tragedy if this was put at risk by short-term, blinkered actions by the Government that have not been thought through.

Lord Rowe-Beddoe: My Lords, I thank the noble Lord, Lord Lipsey, for securing this short debate. Indeed, I thank our Library for producing such a comprehensive briefing pack. I have pleasure in declaring my interest as the president of the Royal Welsh College of Music and Drama, and formerly its chairman and governor. It is a full and supportive member of Conservatoires UK, and one of only a few institutions across the United Kingdom which trains across both music and theatre disciplines, from undergraduate to both masters and doctoral levels.
	For our 700 students, performance forms a central element of the curriculum. Students, mentored by leading professionals, deliver some 300 performances each year. We are a factory-a factory for creativity and of creativity-with an undiluted focus on preparing our students for the professions, to graduate and to earn their living by the use of their varied talents, which some 90% achieve within a year of graduation. Yes, they earn their living indeed-in a sector which contributed greatly to the wealth of the nation, measured in both GDP percentage as well as aiding significantly our great cultural heritage. But at what price?
	Of course these 7,000-odd students across the UK conservatoire system are expensive to train, for reasons well known. The return, however, on the premium funding is a most attractive investment when considered as a percentage of our GDP, as well as of our UK exports, referred to by the noble Lord, Lord German. The LSE report referred to by the noble Lord, Lord Black, considered just three London conservatoires and amply illustrates the economic benefits. However, the £9,000 current premium funding for students allocated by the Welsh funding council cannot be a year-to-year decision. Governments in England, Wales and Scotland must ensure continuity. Otherwise, future planning is in jeopardy.

Lord Grocott: My Lords, what a pleasure-maybe an unusual pleasure-to find yourself towards the end of a debate with many contributors and being able to say that you agree absolutely with everything that has been said. I offer special thanks, of course, to my noble friend for introducing it. I declare a non-financial interest as a member of the governing body of Birmingham City University, of which Birmingham Conservatoire is a constituent part, and one of which the university and students are enormously proud. The city is proud also, which is very important indeed. The university and the conservatoire are very closely rooted in the city and are proud of the region in which we all operate.
	I have three points: one economic, one social and one geographic, all specific to Birmingham. The economic point is that for historic reasons, which I certainly do not have the time or interest to go into, we are rather different from most other institutions in that we are not a stand-alone institution as a conservatoire, and therefore do not receive in the same way exceptional funding recognising the special costs associated with conservatoires. Partly as a result of that, we are-I can say without blushing-one of the best in terms of value for money. Certainly, our income per capita for a full-time student is less than half that of many of the other institutions. That is not to make any comments about any of the others; it is simply saying that we are very good value for money.
	The second point is social, and one I am proud to make. The conservatoire in Birmingham, like Birmingham City University, takes a disproportionate number of its students from disadvantaged or low-income backgrounds. The figure for those in receipt of bursaries is 49%, against the average for conservatoires of 35%. Anyone who has ever taught knows perfectly well the joy of seeing people develop and realise their potential. That is particularly so when you are involved with students who perhaps never thought that they would have the opportunity. It would be tragic if that statistic was ever difficult to maintain.
	The third point is a simple, geographic one. If you were looking for another conservatoire, if there were none in Birmingham, you would have to go north as far as Manchester, or perhaps not quite as far; you would have to go south as far as London; you would have to go south-west to Cardiff; and if you went east, you would simply get to the sea. In the whole of the Midlands, there would be no conservatoire if the Birmingham Conservatoire was not there. We need the funding, and I appeal to the Minister to recognise our rather different position, as he has recognised everyone else's.

Lord Geddes: My Lords, I declare an interest as honorary life president of Trinity College London, the international examination board and an affiliate of Trinity Laban Conservatoire of Music and Dance, for which I was for some years deputy chairman. I congratulate the noble Lord, Lord Lipsey, on his accession to the chairmanship.
	I, too, will highlight the particular contribution of international students to our thriving conservatoire sector. On graduating from our conservatoires, they return to prominent positions in their home countries as powerful advocates for British cultural and democratic values. They go on to form alliances with UK arts and educational organisations that bring substantial artistic, economic and diplomatic benefits.
	We should note the significant financial investment of overseas students in our economy and higher education sector, approaching £11 million per year in direct fee payments to their conservatoires, equating to 11% of the total annual conservatoire income. Those funds are critical in maintaining the outstanding facilities and teaching provision on offer to all our conservatoire students, UK and international alike.
	The noble Lords, Lord Low of Dalston and Lord Wills, have already outlined the problems of the replacement of the Tier 1 immigration route with Tier 2, so I will not go through that again, but it is an important issue. It is essential that the UK Border Agency applies its regulations for renewing highly trusted sponsor status with sensitivity to the characteristics of small and specialist institutions. Conservatoire study in the UK requires major financial and personal investment from international students and years of preparation to reach the standard for entry. Virtually 100% of students go on to complete their courses successfully. There is no plausible risk here of illegal immigration. A proportionate regulatory regime must be followed that does not damage our world-class institutions, nor send a message that ambitious and gifted students are unwelcome.

Baroness Jones of Whitchurch: My Lords, I thank my noble friend Lord Lipsey for initiating this debate which, quite rightly, has attracted a great deal of interest and informed debate from around the Chamber.
	In the short time that I have available I should like to highlight three quick points. First, I do not doubt that, in principle, the Government are committed to the future funding of the conservatoires. However, the Government have to be judged not by what they say, but by what they do. As we have heard, the reality is that grants are being cut; there is insufficient recognition of the extra costs in providing one-to-one tuition and specialist facilities; and the Higher Education Funding Council rules for accessing the additional funds are overly complex. As we have heard, the funding is under review anyway.
	Secondly, the Government have mismanaged the increase in student tuition fees. It was predicted that very few universities would charge the maximum £9,000 per annum fee but this figure has become the norm and, unsurprisingly, in order to cover their costs, all the major conservatoires have been forced to charge this maximum fee. As we have heard, the impact of the tightened rules for overseas students has also taken its toll. The result is that applications for places are down by as much as 14% and the conservatoires find themselves drawing on a more limited, perhaps more socially elite, talent pool. This undoubtedly will be compounded by Michael Gove's refusal to include creative subjects in the EBacc as part of his curriculum review.
	Thirdly, the Government have consistently undervalued the contribution that creative industries make to the UK economy. For example, the UK currently has the largest and fastest-growing creative sector in the EU. The conservatoires play an important part in this, thereby contributing to our economic recovery.
	In conclusion, I say to the Minister that the issues raised this evening are a microcosm of a bigger concern about what will drive our economic recovery. We believe that the creative sector, based on our global reputation, has a crucial role to play. I hope that when he replies he will be able to reassure this House of the practical support and investment in conservatoires necessary to demonstrate that the Government share this vision.

Viscount Younger of Leckie: My Lords, I am grateful to the noble Lord, Lord Lipsey, for this opportunity to set out the Government's position on the funding of conservatoires-or "conservatories" as I noticed was displayed on the screen today. First, let me put on record my wholehearted support for the excellence of our conservatoires. They are a crucial part of our national cultural heritage and in this year which has seen the Olympics, Paralympics and the Queen's Jubilee we have seen how these events have drawn on the talents of our creative sector and the amazing skills and determination cultivated by our conservatoires. Who can forget the sight of the Royal College of Music chamber choir singing in the rain at the Jubilee pageant?
	The Olympics saw conservatoire alumni at their best. The contributions of stars such as Dame Evelyn Glennie, Annie Lennox and Kenneth Branagh showcased Britain and British talent around the world. The Paralympics witnessed the inspirational David Toole, the dancing star of the closing ceremony, and Errollyn Wallen, a teacher from Trinity Laban, whose work contributed to the amazing spectacle. Noble Lords have alluded to their own areas and I have taken note of the contribution from my noble friend Lord Lexden, who rightly highlighted the position as regards a Northern Ireland conservatoire, and the noble Lord, Lord Grocott, who focused on Birmingham. I also noted the reference to Aldeburgh and Britten, where I have been myself, as noted by the noble Lord, Lord Haskel. The contributions from that beautiful part of the country are clearly invaluable and well renowned.
	My own commitment to our conservatoires and the arts is sincere, although my participation in the Parliament choir, along with the noble Baroness, Lady McIntosh, may not be of a sufficient standard to meet the entry requirements for some of these highly prestigious institutions, where there is often only one place for every three or four applicants.
	As has been clearly articulated this evening, notably by the noble Lords, Lord Lipsey and Lord Aberdare, and my noble friend Lord Maclennan of Rogart, our conservatoires are a significant national asset and their impact is felt beyond these shores. They, including Trinity Laban, are worth more than £130 million to our economy and are a force for good. I recognise that there are concerns for conservatoires, as there are within the broader higher education sector, to do with the impact of the Government's higher education funding reforms.
	However, I welcome this chance, if not to resolve all funding concerns, at least to place them in context. That context is, of course, the tough decisions that have been forced upon us by the global downturn. We have had to reform our higher education finance system and to rebalance funding between the state and the student while ensuring that those from lower-income backgrounds have no barriers to access.
	This month, the first cohort of students will arrive at English universities under the new tuition fees regime. While UCAS reports an overall drop in entrants this year, some of which is due to a demographic dip in the number of 18 year-olds-I take note of the views expressed by the noble Baroness, Lady Jones-there are of course still very many more applications than places both at our conservatoires and across higher education. Competition remains fierce.
	I know the noble Lord, Lord Lipsey, recently met the Universities Minister to discuss the position of Trinity Laban. They had a productive discussion in which the Minister was able to provide some assurances that the unique challenges faced by conservatoires will continue to be reflected by the funding council. Despite all the controversy, the financing changes that we have introduced are in the best interests of universities, students and the nation in the long term. They will provide a sustainable funding system for institutions, underpinned by a solid student support system.
	Public funding will continue to flow to our conservatoires through the government-backed tuition fee loans for students and the continued central funding to support the extra costs of running high-cost specialist institutions, such as conservatoires. In addition, support for strategically important and vulnerable subjects will remain. The funding council and research councils will continue to support the conservatoire network.
	I have certainly noted the comments made by the noble Lord, Lord Lipsey, on funding. In England, Higher Education Funding Council funding alone for conservatoires will amount to more than £40 million in 2012-13, which includes support for teaching, research and widening participation. My noble friend Lord German has highlighted the importance of consistency and I hope that he finds this information helpful.
	Perhaps to the surprise of many of your Lordships today, the latest assessment of the financial health of English higher education institutions showed the sector reporting strong surpluses, large cash balances and healthy reserves. It is a sector financially well prepared for the new funding system. The study showed the majority of the key financial indicators as the best on record. This will help institutions to manage the challenges arising from the transition to a new funding regime where the coalition has been able to cut public spending without reducing the overall funds reaching our universities. The withdrawal of the block grant will bring a healthy market to the sector and student choice will drive up quality as institutions strive to attract students. Overall, the total public investment in the English higher education sector remains significant-some £14 billion this year.
	If we focus for a moment on capital projects, we have to manage our financial resources prudently. However, this evening, I am delighted to announce that the Chancellor was able to say that there will be an additional £200 million for the Research Partnership Investment Fund for supporting long-term university capital projects. This fund, launched in the 2012 Budget with a government investment of £100 million, will support universities to develop infrastructure projects if they can match the funding by at least double from private companies or charities. That might partly answer the concerns of the noble Lord, Lord Lipsey, as regards the peeling paint at Greenwich.
	I now turn to the importance of philanthropy. I understand that it is a challenge in these financially strapped times for every institution to diversify its income streams. Conservatoires already do well in this and do not rely solely on central government funding. Indeed, for some, their public funding is a minority income stream. But although our universities have made progress in recent years and funds raised by voluntary giving in the UK in the past five years have increased from £513 million to £693 million, I am sure all institutions will find there is more that they want to do to generate an increase in philanthropic giving. All will want to develop strategies to stimulate donations in order to position their institution as an attractive proposition to enable them to draw in funding to support their goals.
	This Government salute our philanthropists and we think the work that they do is incredibly important. We want to do everything we can to recognise it. I know that many of our conservatoires have been highly successful in attracting donations and endowments. Just last month the Royal College of Art opened the Dyson building, which was built with a £5 million donation from the James Dyson Foundation.
	Of course, elsewhere the arts are well supported. Taking account of lottery as well as government funding, the Arts Council will receive some £2.3 billion over the next four years.
	I move on to the question of US loans for students, highlighted by the noble Lord, Lord Wills, and the noble Baroness, Lady Warwick. I understand that there have been changes to the terms of United States federal loans for US students who are studying abroad. The new requirement is that foreign institutions must have their own degree-awarding powers, in their eyes, in order for their US students to be eligible for US federal aid overseas. That affects some, though not all, of our conservatoires-I believe Glasgow was mentioned this evening. My honourable friend the Minister for Universities is continuing to pursue this matter with Martha Kanter, under-secretary at the US Department of Education, to explain the problem posed for these distinctive institutions. A further discussion is due to be held next week, but of course this is a decision taken by our American cousins and not something for which Her Majesty's Government can take responsibility. I urge all noble Lords with any contacts to use their influence in the United States to press this case.
	Many comments have been made, mainly by the noble Lords, Lord Low and Lord Wills, as well as my noble friend Lord Geddes, about international students and post-study. I will need to get back to noble Lords on those because time is running on.
	This has been a stimulating debate and I welcome this opportunity to hear from the many noble Lords whose experience with conservatoires and universities is richer than my own, but I want to conclude by assuring your Lordships that our higher education sector is in good health, and that our conservatoires are recognised as beacons of excellence nationally and internationally. It is an unfortunate truth that it is never possible in a publicly funded system that every funding need for every priority can be met. Government must balance its priorities. We are entering a new age of uncertainty, with the bulk of funding following student choice, but I hope your Lordships will appreciate the significant steps that have been taken by the funding council, and by the Government, to recognise the unique nature of the conservatoires, to fund them appropriately, and to support their valuable contribution to our nation's cultural health, well-being and heritage.
	On international students and post-study, the unique contribution made by international students cannot be overstated. While the Government are clear that they cannot tolerate abuse of the visa system, make no mistake that they are committed to continuing to welcome bright, creative people to our institutions. London Metropolitan was unfortunate, but our top priority has been to support legitimate students to continue their studies. Replacing the post-study work route was essential, but those in creative occupations can still apply through Tier 5 by applying from overseas. Twelve months' leave can be granted and extended to two years without a salary threshold. On that note I will finish.

Local Government Finance Bill
	 — 
	Report (1st Day) (Continued)

Amendment 31
	 Moved by Baroness Hanham
	31: Schedule 1, page 25, line 7, leave out "audit" and insert "certification"

Baroness Hanham: My Lords, in moving Amendment 31, I shall speak also to Amendments 14, 16, 17, 18, 28, 29, 30, 37, 38 and 50, which, taken together ensure that the Bill provides for the appropriate assurance of calculations and information supplied under the business rate retention scheme.
	Currently the Bill provides for the audit of calculations and information supplied under the scheme, and it should have referred to certification, so that the Government and the major precepting authorities have the assurance that they need about calculations and information supplied by the billing authorities and on which the payments to central government and precepting authorities will be based. This will then mirror what already happens under the current arrangements.
	Amendment 50 removes an amendment to the Audit Commission Act 1998 that would have required the Audit Commission to have made the arrangements, if requested, for the certification of calculations and information supplied in respect of the new business rate retention scheme. However, with the proposed winding up of the Audit Commission as set out in the draft Audit Bill published in July, we need to provide for alternative certification arrangements. These amendments, along with the provisions in the Bill, will provide the necessary framework for the appropriate assurance of calculations and information for the new scheme.
	With this explanation, I ask noble Lords to accept these amendments.

Lord McKenzie of Luton: My Lords, I thank the Minister for her explanation of the amendments, but could she say a little more about what is perceived as the difference between a process that leads to a certification and that which is subject to an audit? Is it the nature of the judgment that is different, or is it what is being given assurance on that is different? What are we actually changing here and what is its outcome? I am not making an issue of it, but it would be helpful to have a bit more information as to why this change is being undertaken.

Baroness Hanham: I think that an audit is carried out by an independent, external auditor and certification can be done by internal people just certifying that something is correct. I think that that is the difference. It is the difference between having something externally verified and signed off and having something done internally and signed off.

Lord McKenzie of Luton: That is helpful. If we are saying that it is the status of the person who is making the judgment that is being changed here, I can understand that. It is whether the judgment being undertaken is of a different nature, given that it is not an audit but a certification, that I was unsure about.

Baroness Hanham: It is not intended to be. That is why the amendments are quick and simple, slipping in the relevant words. I shall read the document that I have. I think that that will help the noble Lord enormously. We anticipate that the certification arrangements will be provided through a tripartite agreement. Under this approach the Secretary of State through regulations and directions will define the assurance requirements and produce certification instructions. At the end of the financial year the local authority will make the arrangements for the assurance to be provided, most likely by the auditor who audits the local authority's accounts in line with the certification instructions. Therefore, I was half right and half wrong, if I am generous to myself.

Lord McKenzie of Luton: I thank the noble Baroness. I think that she has half helped me but we shall look at the record and come back in due course if necessary.
	Amendment 31 agreed.
	Amendments 32 to 36
	 Moved by Baroness Hanham
	32: Schedule 1, page 25, line 10, leave out "or this paragraph" and insert ", this paragraph or Part 6 (funds) so far as applying to non-domestic rates"
	33: Schedule 1, page 25, line 11, leave out from "a" to "does" in line 12 and insert "certified calculation or certified information"
	34: Schedule 1, page 25, line 14, after "or" insert "certified"
	35: Schedule 1, page 25, line 14, at end insert-
	"( ) The regulations may confer power on the Secretary of State to give directions about the certification of calculations or information."
	36: Schedule 1, page 25, line 14, at end insert-
	"Payments out of deduction from central share payments
	9A (1) The Secretary of State may by regulations make provision for a billing authority to make a payment for a year to one or more major precepting authorities of an amount equal to a proportion of the amount that is to be deducted in accordance with regulations under paragraph 7A from the billing authority's payment under paragraph 6 to the Secretary of State for the year.
	(2) The regulations may make provision about the administration of payments to major precepting authorities under the regulations.
	(3) The regulations may, in particular, make provision in relation to payments to major precepting authorities of the same kind as the provision that may be made under sub-paragraph (2) of paragraph 9 in relation to payments to major precepting authorities to which that sub-paragraph applies."
	Amendments 32 to 36 agreed.
	Amendments 37 to 38 not moved.
	Amendment 39
	 Moved by Lord Smith of Leigh
	39: Schedule 1, page 27, leave out lines 37 to 40 and insert "in two equal instalments at six monthly intervals"

Lord Smith of Leigh: I do not intend to delay your Lordships too long on this amendment but I was intrigued by the subsection in the Bill which reads:
	"A payment by the Secretary of State to a relevant authority under sub-paragraph (2) must be made-
	(a) in instalments of such amounts, and
	(b) at such times in the year to which the local government finance report relates,
	as the Secretary of State determines with the Treasury's consent".
	If the process is that flexible, all the money could be paid out on 31 March in any financial year. The amendment probes what the Government intend to do in terms of the payment. I am sure that the Minister is concerned about the Government's cash flow but I am concerned about that of local authorities as well.

Baroness Hanham: My Lords, I shall try to do better on this one. This amendment concerns the timing of top-up payments from the Secretary of State to local authorities. Top-ups will be paid to those authorities which at the start of the system receive less in business rates than their funding level. They will be set out in the draft local government finance report.
	Our objective is to put in place a system of payments which is easy to administer and fair to local government. Currently, local authorities pay their business rates to the Government in 24 fortnightly instalments. That is a system which has worked well and is understood by local government and it may be that the same system of instalments would work well under rates retention. But if local government believes there are better options then we will, of course, consider them. That is why the summer 2012 technical consultation invited views from local government on how many instalments we should have under the new system.
	We will continue to listen on how best to set up the payments system and study carefully the responses to the consultation. The Bill gives us the flexibility to adopt different payment and instalment arrangements in response to those discussions with local government whereas the noble Lord's amendment would constrain us to two payments for the top-up. I do not think that that would support our dialogue with local government on this point but I hope I have given the noble Lord some assurances that the instalment arrangements we will put in place will reflect the views of local government. I invite him to withdraw the amendment.

Lord Smith of Leigh: I beg leave to withdraw the amendment.
	Amendment 39 withdrawn.
	Amendment 40 not moved.
	Amendments 41 to 43
	 Moved by Baroness Hanham
	41: Schedule 1, page 32, line 27, leave out "paid" and insert "payable"
	42: Schedule 1, page 32, line 31, leave out "paid to it for the year" and insert "of the amounts payable in respect of the year under those sections to the billing authorities that are required to make payments to it for the year"
	43: Schedule 1, page 33, leave out lines 10 to 13 and insert-
	"( ) if the authority is subject to a requirement imposed by a direction under paragraph 40 (direction to make calculations or supply information) or by or under regulations under paragraph 40A (regulations about calculations and supply of information) for the purposes of this paragraph, as soon as is reasonably practicable after the time for compliance with that requirement,"
	Amendments 41 to 43 agreed.
	Amendment 44
	 Moved by Lord Smith of Leigh
	44: Schedule 1, page 33, line 39, at end insert ", and
	(c) whether the payment would be triggered by a fall in business rates of 5 per cent"

Lord Smith of Leigh: We now move to the safety net for local authorities. The Minister said earlier that this is a very significant matter and clearly it is for local authorities. It is recognised around the House that local government finance is going through a turbulent period and that there are likely to be movements of significant amounts while the pressure on local authorities continues to rise, particularly as regards adult social services, as my noble friend Lord McKenzie said earlier. The famous graph of doom is getting closer every time we meet. The Government have talked generally about a 10% safety net being accessible. However, given the discussion we had earlier and the fact that the review will not happen until 2020, we could have a local authority which suffers a reduction in its business rates of 9.9% in year one, would not therefore be eligible for any safety net mechanism and would have to run with that for a period of seven years. That is unsustainable in terms of supporting local authorities. As I previously argued, there is likely to be a lot of change, and we are now making judgments about what is significant in terms of a percentage. I should have thought, given the pressure on local authorities from central government in terms of reductions in spending and local delivery, that 5% would be a much more reasonable figure.
	As regards my Amendment 46A, the issue is intriguing because we assumed when the Government introduced the system in the Bill that they would be funding it and the money would come out of central government because of the impact on particular local authorities. We are now led to believe that some of that funding will not come from central government sources but from local government itself. It seems somewhat bizarre that a system that is meant to help local authorities which are suffering from turbulence due to the current funding system are to be paid for by other local authorities. I hope that the noble Baroness can make it clear that the funding will not come from other local authorities and that central government will take responsibility for it. I beg to move.

Lord Beecham: My Lords, I shall speak to my noble friend's amendments, and the amendments in my name and that of my noble friend Lord McKenzie.
	My noble friend Lord Smith rightly referred to the concern about the threshold level above which protection would be given. I note that in the debate in Committee, the Minister said that the Government had been carefully considering these issues,
	"together with the safety net support threshold in the range of 7.5% to 10% below baseline funding",
	and said that that offered the, "best combination on balance". She went on to say:
	"We will be consulting local government over the summer before any final decisions are taken".-[Official Report, 5/7/12; col. GC424.]
	It would be interesting to know what representations there have been and what progress was made during those consultations because, on the face of it, it looks as though the Government are still on course for that higher figure. My noble friend Lord Smith rightly pointed out the severe financial problems facing local authorities-a combination both of cuts in government grant and the rising demand for and costs of services. Many authorities will find themselves in an unprecedentedly grey financial situation. The noises outside suggest that the heavens appear to echo my sentiments.
	The problem is shared by many authorities. I ought to declare an interest as a member of Newcastle City Council and, like others, I am an honorary vice-president of the Local Government Association. In Newcastle, we are contemplating reaching a position whereby we have to find £90 million a year by the end of a three-year period. That is £90 million every year, which is a significant proportion of the budget. Consequently, any diminution of resources from the reduction in business rate income would be a matter of even greater significance.

Baroness Hollis of Heigham: Perhaps I may interrupt my noble friend. The staff of the House are getting the engineers to see what is going on. Alas, we do not have any surveyors left.

Lord Beecham: I shall endeavour to proceed despite the interesting background noise.
	There is a serious question about the extent of the threshold and, as my noble friend rightly pointed out, there is another question about how it is to be financed. The assumption was that the Government would be meeting this cost, and it was a reasonable assumption. Indeed, that was the position put last year by a senior Treasury official in consultation with local government finance officers. We are now faced, apparently, with a safety net cut of £245 million. Originally, it was thought that that would be met from the Government's AME contingency of around £400 million, topped up with some of the set-aside, which could have provided a potential £700 million. In addition to that source, the Government are, of course, sitting on around £600 million extra in business rates. I slightly anticipate the answer that the Minister may make in response to the question of my noble friend Lord McKenzie: that figure is the extra amount collected by councils for the department last year, and it will probably be more this year.
	I am told that the noise we can hear from outside is due to fireworks. Guy Fawkes has obviously struck a little earlier this year, and we do not even have the music to go with it.
	There seem to be ample resources within the Government's provision to provide for any safety net payments due to authorities, yet, on the face of it, it looks as though local government is expected to finance them itself out of its share of the business rates. As my noble friend has pointed out, that is clearly unacceptable. I should be grateful if the Minister could elucidate the Government's position and explain it if our conclusions on the way it is progressing are correct.
	Amendment 49, like my noble friend's Amendment 44, seeks to restrict the threshold to 5%, and we certainly support Amendment 46A in seeking to ensure that those payments are financed not by local government but from the Government's share of the non-domestic rates, excluding any element of revenue support grant.
	Amendment 50 is on a different issue. Hitherto in talking about the safety net, around the House we have assumed that we are talking about a situation where a factory closes, some other problems occur and an existing property no longer provides a contribution towards the local non-domestic rate income-that is, as it were, a safety net for a negative situation arising not as a result of a policy decision. On the other hand, Amendment 50 looks at the situation where properties become vacant and non-domestic rate income falls as a result of a policy decision involving a major redevelopment. Sites are cleared, buildings are demolished, rate income disappears-much as the noise, which has recently ceased-and, as a consequence, there is a loss, which could be quite considerable. Here, the purpose of the amendment is to seek a mechanism by which an application can be made to the Government for a safety net payment-not to compensate simply for a loss but to facilitate the redevelopment. In other words, it seeks to remove a disincentive for significant redevelopments, and it is in a rather different category from what might ordinarily be expected to arise when considering safety nets.
	I hope that the Minister will look sympathetically at this suggestion because we obviously want to incentivise. The whole point of localisation, such as it is-I point out that it is not a complete localisation because the business rate levels will continue to be determined by central government-is that we are all seeking to incentivise economic development in particular. It would be paradoxical if local authorities beginning that process led to a significant loss of income, which might act as a deterrent to the development in the first place. The Minister might want to take that back rather than jump to a conclusion this evening, but it is a point which I hope the Government will bear sympathetically in mind.

Baroness Hanham: My Lords, I congratulate the noble Lord on his coolness under fire. I heard most of what he said and I hope that other Members in the Chamber did as well.
	Perhaps I may deal, first, with the consultation-which the noble Lord asked me about-because I think that it is most relevant to what I am going to say next. We have been consulting on the threshold over the summer. That consultation has only just ended. There have been 400 responses and so before we make an announcement on the level of percentage reduction, we need to look at those. That will happen later. At the moment, we are still sitting between 7.5% and 10%.

Lord Beecham: I thank the Minister for that. What will be the process? Will the safety net limit be prescribed by regulations so that we would then have an opportunity to debate it? Presumably the results of the consultation will be available for us to consider at that time, if not before.

Baroness Hanham: The answer on regulations is yes. What comes out of the consultation will either be in the regulations or, if we can make it available, we will. Is that helpful? That probably sets the scene for us on this amendment.
	We have always been clear that the levy and the safety net were as one. The reason for the levy is to provide money for the safety net. They cannot be separated. The reason for the levy relates to disproportionate growth, in that people have more than they should have in terms of equalisation and that money will go to the safety net. The safety net is to deal with a sudden collapse of a business or something mega happening that leaves the local authority without finance or as much finance as it needs.
	In considering the safety net, we thought that it should not be so generous that authorities cease to care about whether their business rates grow or decline. We want the system to provide an incentive to authorities, first, to maintain and then to grow their business rates. Secondly, the safety net cannot be so lacking in generosity that vital local services are put at risk when authorities see, even temporarily, a decline in the business rates, particularly as this can be for reasons entirely outside the authority's control-we recognise that-for example, because of losses on appeal. We have discussed what happens on appeal. That can be supported by the safety net. Thirdly, wherever the safety net is set, we need to keep an eye on the scale of the levy that would be needed to fund it. A safety net that requires a very stringent levy might work for the safety net, but if it means that authorities keep next to nothing of any growth that they generate, it will have failed the overall scheme.
	I will not pretend that this is an easy judgment about what to do. It is not. It is one that, initially at least, we believe is met by setting the safety net threshold, as I have just explained, somewhere between 7.5% and 10% below baseline funding level; in other words, guaranteeing authorities somewhere between 90% and 92.5% of the funding that they could expect to see from the rates retention scheme. We will want to keep this under review and possibly adjust these percentages in the light of the actual operation of the scheme and certainly as a result of the consultation. Building fixed percentages into the Bill would effectively deny us the opportunity to respond to the concerns of local government, in future, if the percentages turn out to be either too high or too low.
	I am not sure that I understand the problems that Amendment 50 seeks to address, and I am not persuaded that the concerns that underpin it are justified. It is undoubtedly true that a major redevelopment to, say, a town centre, could cause a temporary loss of income before the potential benefits of the scheme come to fruition. But if such a loss were significant, it would be covered by the safety net, which, as I explained earlier, would guarantee the authority between 90% and 92.5% of its baseline funding. To create, therefore, a special class of events-redevelopment-where an authority could be guaranteed to secure more than 90% to 92.5% of its funding, as this amendment would effectively do, seems to be wrong in principle. Why just redevelopment and why not other things? I am sure that other authorities could make a case for other one-off events which might, they would claim, be equally deserving of special treatment. Moreover, by providing indemnity for the early-years loss of income, we might end up with the law of unintended consequences and find ourselves simply indemnifying delay in bringing schemes to fruition, with all parties safe in the knowledge that no cost will fall to them. Where there is a redevelopment, obviously there is an initial loss of money, but the expectation is that as redevelopment takes place, the rating potential will come back in. I hope that explanation will satisfy the noble Lord and he will withdraw his amendment.

Lord Smith of Leigh: I was pleased that the Minister said that we would have, by regulation, an opportunity to debate this. It is important that we have a consultation so that we can consider it. She made the important point-with which I certainly agree-that many of these changes are outside the local authority's control. Obviously we would like to produce growth but we cannot always do it.
	The Minister said that when the process was up and running there would be some kind of review. I will just check that we will not have to wait until 2020 for it. I hope that when the safety net process has been in operation for a year or so it will be reviewed separately from the system as a whole.

Baroness Hanham: My Lords, I am told that the answer to that point is yes; there will be a separate review just of the safety net and the levy.

Lord Smith of Leigh: I beg leave to withdraw the amendment.
	Amendment 44 withdrawn.
	Amendments 45 and 46
	 Moved by Baroness Hanham
	45: Schedule 1, page 34, line 2, leave out "paid" and insert "payable"
	46: Schedule 1, page 34, line 6, leave out "paid to it for the year" and insert "of the amounts payable in respect of the year under those sections to the billing authorities that are required to make payments to it for the year"
	Amendments 45 and 46 agreed.
	Amendment 46A not moved.
	Amendment 47
	 Moved by Baroness Hanham
	47: Schedule 1, page 34, leave out lines 28 to 31 and insert-
	"( ) if the authority is subject to a requirement imposed by a direction under paragraph 40 (direction to make calculations or supply information) or by or under regulations under paragraph 40A (regulations about calculations and supply of information) for the purposes of this paragraph, as soon as is reasonably practicable after the time for compliance with that requirement,"
	Amendment 47 agreed.
	Amendments 48 to 50 not moved.
	Amendment 51
	 Moved by Lord Ahmad of Wimbledon
	51: Schedule 1, page 35, line 14, leave out "(an "in-year calculation")"

Lord Ahmad of Wimbledon: My Lords, Amendments 51 to 56 in this group are minor technical amendments to the provisions about safety net payments on account. A central feature of the rates retention scheme is that authorities will be eligible for safety net payments if their business rates income declines significantly. We have just finished consulting on the threshold below which the safety net should apply.
	Equally important is the process by which authorities will be able to access safety net payments. In our discussions with local government through the working group established to look at the technical details of the scheme, it was established that as part of the process for setting their budgets, authorities will have to estimate their business rates income before the start of the financial year. On the basis of those estimates they will be able to calculate whether they will be likely to need a safety net payment. The strong view of the sector is that they should then be able to claim a safety net payment "on account", as provided for in paragraph 26 of the schedule. The Government agree with this position.
	However, the drafting of paragraph 26, which refers throughout to an "in-year calculation", might be thought to preclude a calculation made "before the year". It is to remove this possible ambiguity that we have tabled the amendments in this group. With this explanation, I ask noble Lords to accept them. I beg to move.

Lord McKenzie of Luton: My Lords, the amendments seem entirely straightforward. We are happy to support them.
	Amendment 51 agreed.
	Amendments 52 to 56
	 Moved by Lord Ahmad of Wimbledon
	52: Schedule 1, page 35, line 24, leave out "an in-year" and insert "a"
	53: Schedule 1, page 35, line 26, leave out "an in-year" and insert "the"
	54: Schedule 1, page 35, line 31, leave out "an in-year" and insert "a"
	55: Schedule 1, page 35, line 33, leave out "an in-year" and insert "the"
	56: Schedule 1, page 35, line 39, leave out "an in-year" and insert "a"
	Amendments 52 to 56 agreed.
	Amendments 57 and 58 not moved.
	Amendments 59 to 62
	 Moved by Baroness Hanham
	59: Schedule 1, page 39, line 46, leave out "audit" and insert "certification"
	60: Schedule 1, page 40, line 1, leave out from "a" to "does" in line 2 and insert "certified calculation or certified information"
	61: Schedule 1, page 40, line 4, after "or" insert "certified"
	62: Schedule 1, page 40, line 8, at end insert-
	"( ) The regulations may confer power on the Secretary of State to give directions about the certification of calculations or information."
	Amendments 59 to 62 agreed.
	Amendment 63
	 Moved by Baroness Hanham
	63: Schedule 1, page 40, line 43, leave out from beginning to end of line 2 on page 41

Baroness Hanham: My Lords, this amendment removes the requirement for the Secretary of State to undertake consultation on pooling proposals before he may designate a pool or revoke such a designation. This will simplify the process for establishing and closing a pool without materially reducing the safeguards in place for pool authorities.
	Amendments 32 and 33 remove the duty to consult those likely to be affected by a pooling designation or its revocation. In tabling these amendments, we are responding to the strongly held views of local government. Local authorities will warmly welcome this change. The rationale is that, in practice, the impact of a pool designation or its revocation is limited to the members of the pool and, because each local authority in the pool must have consented to be there, the removal of the consultation requirement will have no practical impact on the pool authorities. The amendments therefore simply remove a superfluous bureaucratic procedure.
	Moreover, the Government also consider that the removal of the consultation requirement will not reduce transparency, since pooling designations will be identified in the draft local government finance report, on which we will consult widely. Other persons will therefore be notified of the pooling designations that are to have effect for the following financial year.
	Amendments 34 and 35 concern the operation of the pool and the Government's ability to alter any conditions they may have attached to a pooling designation. Apart from pool members, no other parties are likely to be affected by the addition, modification or deletion of a condition, so a duty to consult persons outside the membership of the pool is unnecessary. However, the Government will continue to be required to consult pool members themselves before varying any conditions, since pooling arrangements are intended to be voluntary and it is not right that we should vary conditions without first seeking the views of the members of the pool.
	These arrangements tidy up the provisions around pooling arrangements and remove unnecessary and burdensome procedural requirements, and are widely welcomed by local government. With this explanation, I hope that noble Lords will accept these amendments.

Lord McKenzie of Luton: My Lords, can I confirm that we are dealing with Amendments 63, 64, 65 and 66? I thought I heard the Minister refer to Amendments 34, 35 and so on.

Baroness Hanham: The noble Lord is absolutely right. I apologise. I thought it sounded a bit funny when I said it.

Baroness Hollis of Heigham: It is the fireworks.

Lord McKenzie of Luton: Notwithstanding that, these amendments seem straightforward and we are content with them. We have not actually debated pooling much during our deliberations-it is a very important facility under this Bill, which we support-but we certainly accept the amendments on the basis on which the noble Baroness has moved them.
	Amendment 63 agreed.
	Amendments 64 to 66
	 Moved by Baroness Hanham
	64: Schedule 1, page 41, line 5, leave out from "designation" to end of line 6
	65: Schedule 1, page 41, line 31, leave out from "consult" to end of line 32 and insert "the authorities covered by the designation."
	66: Schedule 1, page 41, line 34, leave out from "notify" to end of line 36 and insert "those authorities."
	Amendments 64 to 66 agreed.
	Amendment 67
	 Moved by Baroness Kramer
	67: Schedule 1, page 43, leave out line 27 and insert-
	"37 (1) The Secretary of State may provide for the designation of areas in which certain non-domestic revenues shall be ring fenced to support infrastructure investment financed using tax increment finance and other mechanism, and in order to do so may-"

Baroness Kramer: My Lords, given the speed with which this debate is going, I shall try to be fast, in the mood of the evening. All the amendments in this group stand in my name and those of my noble colleagues Lord Tope and Lord Shipley. They address deficiencies in the clauses in the Bill that deal with tax increment financing, commonly known as TIF.
	As your Lordships will know, TIF-type financing arrangements financed much of the infrastructure of our Victorian cities. The structure is widely used in the United States to finance regeneration and development. It is a financing arrangement that is well understood by the capital markets and investors, but it has not been available for many decades as a financing tool for local government in the UK.
	First, I acknowledge that the Government have taken an important first step by providing a framework in the Bill for this kind of financing. They have proposed two different programmes, commonly known as TIF 1 and TIF 2, both of which are based on the new right of local government to retain a percentage of the uplift in business rate revenues that results from designated infrastructure investments.
	However, the Government have in effect made sure that the use of TIF 1 and TIF 2 will be severely limited. TIF 1 programmes are crushed by the seven-year reset period in business rate retention. In effect, a project started on day one of the legislation must be designed, receive planning consent, be built and financed, and the financing repaid, within seven years. That is limiting enough, but in the second year the time span reduces to six years and then to five years and so on. Clearly, no steady flow of projects can possibly result from this arrangement. TIF 2 enjoys a 25-year guarantee of business rate retention, so that problem disappears, but the programme is capped at £160 million for the whole nation and so is, frankly, a drop in the ocean.
	These constraints fly in the teeth of the Government's commitment to the devolution of power to local authorities. The constraints emasculate a form of financing that could have enabled a host of infrastructure projects at a time when we need economic growth. The constraints delay the development of a real market to fund TIFs. Markets need both volume and a steady supply. Only then will investors develop the skill base and build the marketing structure to invest, and only then will they offer well structured, attractively priced financing for TIF projects.
	Amendment 67 would simply make sure that the term "tax increment finance" was included in the Bill. It is just silliness that the programme dare not, as it were, speak its name under the present arrangement.
	Amendment 68 would tackle a far more significant problem. The Government argue that they must constrain TIFs because the financing will be added to the national debt figures, even though the national Government are providing no guarantees and no backstops and the project generates the repayment of the financing. Why do the Government take that position? It does not happen in other countries, so no one can argue that it is required by international accounting standards. This amendment effectively removes that self-inflicted problem.
	Amendment 69 allows flexibility in designating the start of the seven-year rate retention period for any specific TIF 1 project. TIF 1 would therefore be far more viable. I defy anybody to give me a coherent argument against this, other than not wanting TIFs to happen.
	Amendment 71 allows the Government to look at TIF 2 projects on a case-by-case basis rather than set an artificial, national cap. This amendment seems simply good sense and says that we respect the judgment of the Treasury on a project-by-project basis.
	Ironically, because financing for infrastructure in the UK has been hard to come by for so many years, there are excellent projects, big and small, all around the country, which could go ahead if the constraints on TIFs were eased. Many would deliver jobs, housing and new commercial opportunities quite quickly, especially the smaller projects, which need little lead time. Many local authorities have been so disappointed by the emasculation of TIFs. The Government have a last opportunity to think again, and I hope that they will.

Lord Shipley: My Lords, I express my full support for the speech by the noble Baroness, Lady Kramer. The amendment is about getting TIF written into the Bill as a financial lever that can generate growth. All the international experience suggests that other countries are well used to using it.
	I fully understand the need to ensure that investment and borrowing are responsibly undertaken and I have no desire to see problems arise such as have occurred in Spain with excess local authority and regional spending. However, localism in England has to mean trusting people with power and enabling them to manage their own investment and their own risk. As long as schemes meet the regulations, are genuinely additional and would not otherwise take place, the number of schemes should not be limited by central government, hence our full support for Amendment 71 which gives effect to that.
	One of the amendments makes clear reference to tax increment financing, as opposed to there being no reference to those words at all. There is also an amendment that gives greater flexibility in start dates for schemes. Absolutely crucial, however, is the question of self-funding expenditure that complies with accounting standards, and the fact that it ought to be exempt from the public expenditure control framework because its impact on the deficit would be neutral, as the noble Baroness, Lady Kramer, has pointed out. In other words, there is a need to drive long-term growth through tax increment financing rather than through something that counts as an in-year spending decision, as long as it has been exempted from the public expenditure control framework. It seems that the Treasury has regarded infrastructure funded by TIF 2 as part of the local authority self-financed expenditure limits, which contrasts with the policy being followed for enterprise zones, which does not count, even though both mechanisms borrow against future business rate income over 25 years.
	This is all about growth. We urgently want everyone to have responsibility for driving growth. This Bill says a lot about devolving business rates to local authorities. However, actually empowering and enabling local authorities to manage investment on the basis of future business rate income, but over a long period of time as opposed to a short one, is a vehicle that will enable growth levels to be enhanced. I hope very much that the Minister will agree with us that we need to do a little more now to promote tax increment financing as a vehicle for growth.

Lord Beecham: My Lords, I warmly endorse the amendments moved by the noble Baroness, Lady Kramer, and supported by my fellow Newcastle councillor-ex-Newcastle councillor, I should say now-the noble Lord, Lord Shipley. The noble Baroness is quite right to point out that for all the potential of this scheme, the amount that the Government have decided to allocate to it is, frankly, pitiful. I think that the figure is £150 million. During the mayoral referendum campaigns, which took place earlier this year, much was made of the prospect of city deals for the eight authorities that were subjected to a referendum, and the prospect of tax increment financing was dangled in front of them. However, only three authorities, I think, have now been awarded tax increment financing arrangements. Newcastle, I am pleased to say, has secured I think £90 million of the £250 million, but only two other authorities have been brought in. That is a fairly minimal impact overall.
	We have just been treated to the noise of fireworks, which reminded me rather of the spectacular opening of the Olympic Games and the wonderful display there, which of course cost £29 million. That is 20% of the total that is going to be allocated for tax increment financing-for one evening's entertainment, however wonderful. There has to be something wrong with the Government's priorities when they afford only £150 million to an imaginative scheme that should incentivise growth. This is a good way to promote growth quickly. As the noble Lord, Lord Shipley, implied, infrastructure investment, which is of course what tax increment finance would essentially be directed to, can take place relatively quickly. It can generate growth in its own terms and blazes the trail for more substantial growth over a period.
	In the debate in Committee the Minister prayed in aid the Office for Budget Responsibility as taking a view on these matters. I do not know on what basis that information was conveyed. It may be that the OBR has advised the Government-but the OBR does not take decisions in these matters.
	As the noble Baroness, Lady Kramer, pointed out, it is for the Government to decide. On the face of it, it does not appear to be inconsistent with international practice. There has been some question about whether PFI arrangements should or should not be counted for those purposes-certainly, for many years, they were not-but the difference between this and PFI is that PFI was to cover public expenditure. To my mind, the only advantage of PFI arrangements was that they took it off the balance sheet internationally, as it were. It is not comparable when the whole thrust of the TIF proposal is to facilitate private sector development, with the beneficial effect that that would have on the economy. I hope that the Minister and the Government will look at this again and not seek reasons not to accept the amendment of the noble Baroness, Lady Kramer, but find ways to accept and develop it.
	Can the Minister confirm or refute the suggestion that that £150 million is to be found in part by top-slicing local government revenue grant by £60 million? Once again, we are seeing a three-card trick develop, in which we are told that we are getting extra resources, but in fact those extra resources are being deducted from what was coming to local government any way and rebranded. If that is the case-it may not be, but I am advised that it is by the city treasurer in Newcastle-that is a sleight of hand which is unworthy. I hope that the Government will ensure that the total of £150 million-or the larger amount which we hope for-is new money and not deducted from the anticipated grant. The Opposition strongly support the amendments.

Baroness Hanham: My Lords, I am sad not to be able to satisfy the noble Baroness. I know how keen and knowledgeable she is about TIF and she has been pushing a hard line ever since Second Reading. I understand why, because she feels that this will not be of sufficient benefit.
	The noble Baroness has also been pushing the line that it should be off the balance sheet, so I therefore turn first to Amendment 68, as it goes directly to the heart of what we are talking about. The amendment would ensure that TIF is not scored as public sector debt. That is simply impossible. We had a long debate about this in Committee and the facts have not changed. TIF 2 must always count as public sector borrowing. Because it uses tax revenue-business rates-to secure funding for development within a predefined area; and because taxes are uniquely established by the tax-raising power of government, TIF 2 must be recorded as government borrowing, even if a private sector developer is taking on the development risk. The Office for Budget Responsibility, to which the noble Lord referred, has confirmed that that is how the borrowing must be treated in the national accounts.
	It is therefore a direct impact on public sector debt which cannot be avoided. The local authorities who were successful in the TIF 2 competition-because a competition it indeed was-are now confirmed as Newcastle, Nottingham and Sheffield, which will be undertaking additional borrowing that they otherwise would not have. Therefore, TIF 2 schemes come at a cost to the Government, as we have to count the cost of the additional capital expenditure that the new borrowing supports.
	The Government have been very clear that the amount of TIF 2 has been limited to £150 million at this time-I hope to have an answer for the noble Lord about the £60 million-to comply with our overriding priority of deficit reduction. The £150 million was from topslicing from councils, but it reflects the business rates retention element, not the levy element. I simply have to reject Amendment 68 on the basis that this has to be on the balance sheet.
	Going back to Amendment 67, it seeks to ensure that designated areas are identified for the purposes of infrastructure provision in the Bill. This is not necessary; the Bill already allows, under paragraph 37 of new Schedule 7B to the 1988 Act, for the Secretary of State to designate areas within which the ratings income will be disregarded from the business rates retention scheme.
	I am not convinced that there is much practical benefit to be gained from Amendment 69. All it would seem to do is to introduce further complexity. It is much easier for the operation of the scheme if the income is disregarded at the beginning of the year, and I am not persuaded that this has a significant detrimental impact on local authorities.
	Amendment 71 looks to remove important controls from the system in that it seeks to create a framework where local authorities can advance any TIF scheme. For those reasons, I have to reject the amendments.
	However, the noble Baroness talked about local authorities having many projects which they already have available and want to carry out. The point I would make is that if they are so ready, the seven-year reset is not an impediment because they could be ready to be got going in year 1, which would give them the support that they need. I ask the noble Baroness to withdraw her amendment.

Baroness Kramer: My Lords, I thank the Minister for her reply, although we are simply going to have to disagree on a lot of this. I would point out, however, that her comments about the OBR and accounting necessity mean that her Government now have a major problem with their enterprise zones. Perhaps she needs to go back quickly and suggest that the OBR will have to change the accounting programme that has been put in place to cope with the enterprise zones and the financing that will flow from them. That is the only logic of the statement that she has just made.
	As I said at the beginning, however, I recognise that this Bill marks a significant step forward and that at least there is now a framework in legislation for TIFs, although it will take some further steps to turn them into vital and vibrant instruments for local government to use. Three at least have been done, for Newcastle, Sheffield and Nottingham. I hope that the Government will continue to follow through on the logic of their own thinking on devolution, infrastructure and joined-up thinking between TIFs and their goals for economic growth. Perhaps at a later point in this Parliament we might see further progress on this issue, but for the moment I withdraw my amendment.
	Amendment 67 withdrawn.
	Amendments 68 and 69 not moved.
	Amendment 70
	 Moved by Lord Jenkin of Roding
	70: Schedule 1, page 46, line 8, at end insert-
	"( ) Without prejudice to the generality of this paragraph, the regulations may provide that a designated class may include a hereditament which consists of an investment to provide electricity generation from a renewable or other low carbon source, including nuclear power."

Lord Jenkin of Roding: My Lords, I assure your Lordships that this will be a considerably shorter speech than the last one that I made but of no less importance. I will start, if I may, by quoting a letter that was written to local authorities in the Somerset area, which is of course hosting the Hinkley point nuclear power stations. The letter was written from the Cabinet Office and signed by my right honourable friend Oliver Letwin. It draws attention to the coalition's agreement in the programme that they embarked on in 2010.
	The letter says that it set out a commitment to,
	"encourage community-owned renewable energy schemes where local people benefit from the power produced. We will also"-
	these are the important words-
	"allow communities that host renewable energy projects to keep the additional business rates they generate".
	The letter goes on:
	"While this commitment did not extend to all low-carbon technologies, the design of the business rates retention proposals will ensure that there will be significant ongoing benefits to those authorities hosting low-carbon energy infrastructure. It is likely that nuclear power stations will generate significant increases in business rates revenues in line with scale of the programme".
	The nuclear industry has been campaigning for some time that benefits that apparently were offered to renewable technologies should have been offered to it as well, and that the communities that host these very major investments should see some direct benefit from doing so. This was followed up by a debate in another place by the honourable Member for Bridgwater and West Somerset, my honourable friend Ian Liddell-Grainger, on 18 September, the last day before the conference recess, which was answered by the Minister of State for Energy at the Department of Energy and Climate Change, my honourable friend John Hayes. This whole concept was examined in some detail and a comparison was made with the Section 106 agreements under planning legislation. The point was made that they did not go far enough. Although there have now been substantial agreements with the developer on Hinkley Point under Section 106, it was felt that something more was necessary. Mr Hayes said:
	"I can assure my hon. Friend that I will draw the matter into sharp focus, and we will indeed deal with it in the short term. My officials have been working on a number of ways, including business rates retention, in which a community benefit package could be delivered".-[Official Report, Commons, 18/9/12; cols. 897-98.]
	I have two points to make to my noble friend. First, am I right in assuming that Part 10 of Schedule 1, "Designation of areas and classes of hereditament", will be the legislative measure under which regulations could be made, both for renewables and for nuclear power stations? I would be glad if my noble friend could assure me of that.
	Secondly, will she assure me that her department is now fully behind the proposal that this should be done for nuclear power stations? I know that the Department of Energy and Climate Change is and, as we have heard, the Cabinet Office has clearly expressed a strong argument in favour. I hope that my noble friend can say that this is now government policy and that, when the regulations come to be made under Part 10 of Schedule 1, they will in fact cover nuclear power stations. I beg to move.

Lord McKenzie of Luton: My Lords, I start by congratulating the noble Lord, Lord Jenkin, on being able to quote from a letter by Oliver Letwin; I thought that most of his correspondence ended up in park bins.
	As I understand it, the Government issued a statement of intent concerning the application of the business rate retention scheme and renewable energy projects in May 2012. In particular, the statement highlighted that the origin of the proposals was the coalition agreement. I am not sure whether these days that is honoured more in the breach than in the observance-it is not our job to encourage its retention-but the thrust of the proposals, which we support, is that business rates for new renewable energy projects would be retained in full by the relevant local authorities. The statement of intent set out what for these purposes would be considered as renewable energy projects and qualifying technologies.
	The noble Lord's amendment would extend the application of the provisions to low carbon sources, including nuclear power. This would seem to take the provision beyond its original intent, and it would seem beyond the coalition agreement. But as I say, we are not guardians of the agreement and do not hold ourselves out to be. I discussed this matter briefly with colleagues who have responsibility in these areas and they were relaxed about us supporting this extension, if that is what it is.
	I will make just a couple of points. Part of the process is to encourage local planning authorities to accommodate these arrangements. For the nuclear power plants we are talking about, it is more likely that they would take what used to be called the infrastructure planning commission route. However, that does not negate the point the noble Lord is seeking to press. I also wondered whether nuclear power projects would be on the central rating list rather than the local one, but it is right that they are on the local list and therefore fall within the ambit of the provisions and support that can be given.
	The noble Lord has raised an appropriate point and we are happy to support the extension of this, if that is what it is, and he has quite properly asked the Government for their view.

Baroness Hanham: My Lords, let me start by confirming for my noble friend that this would come under the schedule he referred to. While I understand the concerns that prompted him to table this amendment, I hope that I will able to convince him that it is unnecessary, and that he can have confidence about the Government's intentions in terms of the way the rates retention scheme will treat the business rates paid by new renewable energy projects and by nuclear power stations, so that he will be able to withdraw his amendment.
	I should say initially that we do not believe that my noble friend's amendment is needed. Paragraph 38 of the schedule is clear that the Secretary of State may, by regulation, designate classes of hereditaments by reference to such factors as the Secretary of State thinks fit. The regulations will in effect enable the authority to keep the business rates attributable to property falling within that particular class of hereditament. The business rates revenues from that development would be disregarded in the calculation of the levy or any reset of the system. The Bill quite rightly makes no attempt to specify or to restrict the possible classes that may or may not benefit from such provision. The Government have been very clear that authorities which host new renewable energy projects will be able to benefit from the full level of business rates paid on such projects. That particular commitment was set out, as noble Lords have said, in the coalition agreement and we will deliver it-not in the breach, but through regulations under paragraph 38. The Government set out in their statement of intent published on 17 May the technologies that would qualify as renewable energy projects for the purposes of that commitment.
	With regard to rateable property which generates electricity from other forms of low carbon sources, including nuclear power stations, the Government's proposals for business rates retention, as provided for in this Bill, already provide strong benefits to authorities which host such developments. For the new generation of nuclear power stations, the business rates are likely to be substantial, and there is therefore likely to be a significant financial boost to those authorities hosting one. In addition, the Government made clear in the national infrastructure plan that they would bring forward proposals for a community benefits package for nuclear power stations by 2012. We have been working closely across government to develop such a package. My honourable friend in the other place, the Minister of State for Environment and Climate Change, confirmed as recently as 18 September that the Government remain on track to deliver the package. We cannot yet reveal the details of the community benefits package for nuclear power stations or how such a scheme might work. However, I can assure him that, if it were decided to use the business rates retention scheme to provide even greater support to those authorities hosting new nuclear power stations, the Bill already has the flexibility to enable us to deliver such a mechanism. There is no need to include in the Bill specific types of development that may be designated under paragraph 38. I am sure that he will understand from what I have said that nuclear power stations would be included. I hope that, with that explanation, my noble friend will feel able to withdraw his amendment.

Lord McKenzie of Luton: My Lords, before the Minister sits down, will she clarify something for us? I think the thrust of her point was that there is going to be a community package for such provision in any event and therefore it is not planned that it will be provided under the business rates retention scheme proposals in the Bill. It is certainly not included in the list of qualifying technologies in the statement of intent. Is the Government's point that it will accommodate requests to be included in those qualifying technologies or that nuclear power will have to be dealt with by a different route or a different package?

Baroness Hanham: The community benefit aspect of this will be constructed about the nuclear energy, which I think is the point the noble Lord is making. Local authorities-there is likely to be more than one-that host nuclear power stations will get to keep the revenue from the rates. I am not sure that I have convinced the noble Lord.

Lord McKenzie of Luton: I apologise. I do not want to prolong this as the clock is ticking, but I did not see that. Perhaps I am misunderstanding the qualifying technologies set down in the statement of intent. I assume the statement of intent is the Government's starting position on what technologies are going to avail themselves of this support. I am happy for this to be dealt with in correspondence, if that would be helpful, but if the Government proceed on the basis of the statement, it does not seem to include nuclear power.

Baroness Hanham: I will write and confirm to the noble Lord. I am pretty well convinced that it does, but I will confirm it.

Lord Jenkin of Roding: My Lords, I am extremely grateful to my noble friend for her assurances. I certainly take heart from them. On the question asked by the noble Lord, Lord McKenzie, as I think I said, Mr Letwin's letter said:
	"While this commitment did not extend to all low-carbon technologies, the design of the business rates retention proposals"-
	I think that is what we are talking about, and I am grateful for the confirmation that paragraph 38 is appropriate-
	"will ensure that there will be significant ongoing benefits to those authorities hosting low carbon energy infrastructure. It is likely that nuclear power stations will generate significant increases in business rates revenues in line with the scale of the programme".
	I think it was a perfectly fair question, and I hope we will all get a copy of the answer that will be sent to the noble Lord, Lord McKenzie of Luton. In the mean time, I am happy to withdraw the amendment.
	Amendment 70 withdrawn.

House adjourned at 9.53 pm.